FUNAN Microfinance Plc. I ANNUAL REPORT 2019 1 TABLE OF CONTENT
01 CORPORATE PROFILE FUNAN History Vision, Mission and Core Values Corporate Governance Risk Management & Compliance Code of Conduct
02 LEADERSHIP Organizational Structure Chairman’s Message Chief Executive Officer’s Message Board of Directors Executive Management
03 SOCIAL RESPONSIBILITY Corporate Social Responsibility Financial Education
04 AUDITED FINANCIAL STATEMENTS Report of the Board of Directors Report of the independent auditors Statement of financial position Statement of comprehensive income Statement of changes in equity Statement of cash flows Notes to the financial statements
05 BRANCH NETWORK CONTACT Top Branches & Staff Performance Products and Services Branch Network and Contact
2 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 3 1
CORPORATE PROFILE
FUNAN History Vision, Mission and Core Values Corporate Governance Risk Management & Compliance Code of Conduct
4 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 5 FUNAN HISTORY
License as Non-Government Organization (NGO) Established in July 2011 as an NGO named Cambodian Association Development (CAD) legally registered with Ministry of Interior to provide the quality micro-loan to the poor for developing their community. By the end of 2014, CAD had 49 branches, 821 staffs, more than 30,000 clients with loan ២០១៩ outstanding around USD4 Million. FUNAN has grown Transforming to Microfinance Institution 51 branches, In August 11, 2015 Cambodian Association Development (CAD) received the microfinance license 637 employees, from National Bank of Cambodia (NBC) named Funan Microfinance Plc; and legally registered with USD58 Million of other government authorities such as Ministry of Commerce in June 2015 and General Department loan outstanding of Taxation in July 2015. All assets and liabilities of the CAD had been transferred and received of- ficially approval by the National Bank of Cambodia in August 11, 2015. In 2016, Funan Microfinance ២០១៧ Plc had 49 branches, 733 employees, more than 30,311 clients and loan outstanding around USD 100% of shares acquired by 10 Million. Cambodia Post Bank Plc. On 30th November 2016, Cambodia Post Bank Plc. entered into a sale and purchase agreement
(SPA) with the Company’s shareholders to acquire 100% shares of the Company. ២០១៥ The year of 2017/ Business Transformation Transformed to The change of shareholders was approved by the National Bank of Cambodia (NBC) on 4th April Microfinance Institution 2017 and approved by the Ministry of Commerce on 11 April 2017. In May 12, 2017, Funan organized ២០១១ an official shares transfer event attended from new and existing shareholders, authorities, staff and As an NGO named management, other national and international distinguished. Funan Microfinance Plc. has been Cambodian Association transformed and defined new target market segment complement to the segment of its parents Development (CAD) company, the Cambodia Post Bank PLc. To reduce loan collection at field by Credit Officer while almost 100% of loans were conducted at field, In June 2017, FUNAN entered into agreement with WING, the biggest Payment Service Proces- sor (PSP) in Cambodia, to enlarge loan repayment channels and started transforming clients to pay at officer counters and WING agents nearby them. Then, in December 2017, FUNAN joined another cooperation with Darapay (PSP) on loan repayment.
The year of 2018/ Growth and Franchises Development In June 2018, we started to implement the loan disbursement through Darapay (PSP) in the branch- less operational areas then rolled out to all coverage areas as the choice for customer. In 2018, FUNAN expanded two Branchless areas. In July 2018, FUNAN signed business cooperation with Sovannaphum Life Assurance for Group Credit Life Protection. And others business cooperation with Darapay, Cambodia Post Bank Plc., and the local shops as merchants for the loan referrals. By this year, Funan was having 51 branches, 2 branchless areas (Business hubs), 646 employees, 19,856 clients, and the loan outstanding was increased to USD47 Million.
The year of 2019/ Business Sustainability By 2019, FUNAN is having 51 branches, 5 branchless areas (Business hubs), 637 employees, and total loan portfolio is USD58 Million. For this year, FUNAN receives a break record in profitability.
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To be the best Microfinance Institution (MFI) that enables To provide innovative financial success and enriches lives of Cambodian people. products and services, that are simple, convenient, and fast; and comply with regulations.
MI SS I N O O I N
S
I V
S E C LU ORE VA
TRUST A trusted partner in our stakeholder’s success. Within Funan, we have the utmost confidence in our colleagues to play their part in achieving our common goals. ENTREPRENEURSHIP We encourage empowerment, initiative, and transparency among employees to continue to reinvent and improve our products, services, and operational processes. ACCOUNTABILITY Own our actions, make it happen with diligence and honesty. MORALITY We take our social responsibility seriously. We apply the highest moral and ethical standards to each and everything that we do – inside and outside the Company.
8 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 9 CORPORATE GOVERNANCE Funan Microfinance PLc creates a corporate an active participation of Independent Directors in the also responsible for monitoring the implementation of Members: governance to provide greater confidence to all Company. risk management policies as defined by the Board. It Mr. Neo Poh Kiat Chairman stakeholders including partners, investors, suppliers, also plays a key role in giving professional advice to In order to focus on the critical functions of the Mr. Teo Meng Poh Philip Member creditors, customers and compliance with the the risk function of the Institution with best international company, the Board may constituted such Committees Mr. Toch Chaochek Member regulations stated in B7-08-211 Prakas of governance practice. as and when required to ensure smooth functioning of in Banks and Microfinance Institutions. In addition, Meeting: the Company. Members: good Corporate Governance ensures sustainable Meetings shall be held as and when appropriate, business operations, managing and addressing key The Board has constituted three Committees namely: The Board appoints the ROC Chairperson and the term but at least twice a year. The Chairperson of the business risks on time. of office is for three years from the date of appointment. Committee may convene additional meetings if 1. Audit Committee The ROC can be composed of non-executive directors The established Corporate Governance Structure deemed necessary. 2. Risk Oversight Committee and experts who are not directors of the Company of comprising the following parties, provides a 3. Remuneration and Nomination Committee whom are considered by the board to be independent comprehensive framework to (i) independent internal of management and free from any business or other MANAGEMENT COMMITTEES auditor who reports to the Chairman of the Audit 1. Audit Committee relationship which could interfere with the exercise of Committee and not to the management (ii) independent Seven Management Committees will assist the This committee is constituted to ensure safe and their independent judgment. external auditor who is appointed by the board and sound corporate governance and it is vested with Chief Executive Officer (CEO) in focusing on specific gotten approval from National Bank of Cambodia necessary powers as defined in its Charter to achieve Members: matters, monitoring and tracking an overall company’s (NBC), the central bank, on this appointment; and its objectives. The powers and terms of reference of operation performance and also fulfil their roles and this party submits direct report to the board (iii) Risk Mr. Teo Meng Poh Philip Chairman the Audit Committee are comprehensive and comply responsibilities delegated by the CEO, report to the Management function is reporting directly to Risk Mr. Giang Sovann Member with the requirements as set out by Article 131 of the CEO on decisions and actions taken, monitor the Oversight Committee of Board level (iv) management Mr. Toch Chaochek Member Law of Commercial Enterprise, as well as Article 8 of Company’s performance, and make any necessary committees which are responsible for various day to the National Bank of Cambodia’s Prakas B7-08-211 on Meeting: recommendations on general matters arise in daily day running aspects of the Institution (v) various codes Governance in Bank and Financial Institutions. The business operations. of conduct, whistle blower policies that are in place. Meetings are held as and when deemed appropriate, Chairperson of this committee is a Non-Executive (vi) Board / committees have oversight and approve but at least four times a year. The Chairperson of the 1. Executive Committee (EXCO) Independent Director who also answers all queries important aspects such as yearly budget for expenses ROC may convene additional meetings if deemed 2. Assets and Liabilities Committee (ALCO) from shareholders at Annual General Meeting. and manpower, audit plan, credit risk policies etc. with necessary. 3. Credit Committee (CC) the execution of these policies and plans being the Members: 3. Remuneration and Nomination 4. Procurement Committee (PROCO) responsibility of the management. The AC consist of not less than 3 members. 5. Human Resource Committee (HRC) Committee (RNC) The role of the Board is defined by taking into account 6. Operational Risk Management Committee The Chairman of the AC is a non-executive, independent prevailing international best practices while ensuring This committee is constituted by the Board to meet (ORMC) Director of the Bank. All the members of the AC are compliance with local legal and regulatory framework. requirements of Governance to deliver best practice . 7 Customer Complaint Handling Committee The current corporate governance structure includes independent of the management of the Company. for the company. The Chairperson of this committee is (CCHC) the Board of Directors (BOD) and under BOD we Mr. Giang Sovann Chairman an Independent Director. The committee is responsible have professional board committees and executive Mr. Teo Meng Poh Philip Member for implementing a very good remuneration policy to be committees. Mr. Toch Chaochek Member consistent with the long-term objectives and corporate values of the company. It also recommends some BOARD COMMITTEES Meeting: procedures to select and replace board members and The AC meets as frequently as required, but no less independent individuals who will potentially become Further the Company believes that an active, well- than 4 times a year. committee members. The committee approves the informed and Independent Board is necessary nomination of senior management. to ensure the highest standards of Corporate 2. Risk Oversight Committee (ROC) Governance. Funan’s Board of Directors is appointed The Committee is appointed by the Board and consists by National Bank of Cambodia consist of five members, This committee includes three members decided by of not less than 3 members and a Secretary of the two independents Board members. The Board is the Board. It is chaired by a person with expertise in Committee. The Board shall have the power at any responsible for overall compliance with the corporate finance and banking risk management. The committee time to remove any members from the Committee and governance and oversees the performance of the undertakes key duties as decided by the Board of to fill any vacancies created by such removal. company and ensures shareholders protection and Directors and documented in its Terms of Reference,
maximization of their long term values. There is also and any such duties delegated to it. The committee is
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1. Executive Committee (EXCO) responsibility; evidence of previous performance of 6. Operational Risk Management Committee experience, effective warranty and conformity to law. (ORMC) This committee includes seven members will be 3. Head of Finance (HoF) Member permanently invited to every EXCO meeting. This 4. Head of Risk Management Member Members: The Operational Risk Management Committee (ORMC) committee is chaired by Chief Executive Officer. The (HRM) is chaired by Head of Risk Management. The purposes The PROCO Committee will comprise of the following purpose of the Executive Committee is to support of this committee is to Implement and maintaining a Meeting: members: the Chief Executive Officer (CEO), in monitoring and robust operational risk management for the Company. tracking an overall company’s operations performance Meeting shall be held as and when appropriate, but 1. Head of Finance (HoF) Chairperson Regularly, monitoring and assessing Business or and to report progress of day-to-day work activities at least a time per month. The Chairperson of the 2. Chief Executive Officer (CEO) Member Function level operational risk profile and provide from each business unit to CEO and as well as giving ALCO may convene additional meetings if deemed 3. Chief Business Officer (CBO) Member summary or associated mitigation actions to ORMC. advice and approval on general matters arise in daily necessary. 4. Head of Risk Management(HRM) Member Reviewing and improving Risk Control Self-Assessment business operations. 5. Head of Human Resources (RCSA) programs to ensure an effective Operational 3. Credit Committee (CC) & Admin (HHA) Member Risk Management (ORM) framework. Members: The purpose of the Credit Committee is to approve Meeting: Members: The EXCO member shall comprise all one-level down credit guidelines allowed under the Program from CEO (CEO’s direct reports), including: Governance Framework and credit limit granted for Meeting shall be held as and when appropriate, but The permanent committee members consist of: a customers or a group of related customers beyond at least a time per month. The Chairperson of the 1. Chief Executive Officer (CEO) 1. Head of Risk Management Chairperson the signing approving authority limit. In addition, CC is PROCO may convene additional meetings if deemed 2. Chief Business Officer (CBO) (HRM) responsible for implementation and monitoring of the necessary. 3. Head of Risk Management(HRM) 2. Chief Executive Officer (CEO) Member credit risk management frameworks and policies in 3. Chief Business Officer (CBO) Member concerning with the company business as whole and 5. Human Resource Committee (HRC) 4. Head of Internal Audit (HIA) 4. Head of Finance (HOF) Member ensure the compliance with the Program Governance 5. Head of Finance (HOF) The purpose of the HRC is to ensure that the decision 5. Head of Human Resources & Member and Monitoring Framework. 6. Head of IT (HIT) making process of internal staff appointment / Admin (HHA) . 7 Head of Human Resources & Admin (HHA) recruitment, promotion, transfer, and salary increment Members: 6. Head of Internal Audit (HIA) Member are transparent and fair and advice on staff disciplinary Meeting: . 7 Head of Information & Member The CC will comprise of the following members: action. Technology (HIT) Meetings shall be held as and when appropriate, but at 1. Head of Risk Management Chairperson Members: least once a week. The Chairperson of the Committee 7. Customer Compliance Handling 2. Chief Executive Officer (CEO) Member may convene additional meetings if deemed necessary. The committee members should be careful to avoid Committee (CCHC) 3. Chief Business Officer (CBO) Member conflicts of interest that would compromise their 2. Assets and Liabilities Committee (ALCO) 4. Head of Finance (HOF) Member The Customer compliance handling committee judgment, and should excuse themselves from any (CCHC) is created to implement and maintain an The purpose of the Committee is to monitor all elements Members: decision in which there may be conflicts of interest, effective Complaint Handling Policy for the Company. of Assets and Liability Management, and of major whether actual, potential or apparent. The permanent Meeting should be held as and when appropriate, To oversee, monitor, evaluate and recommend all concern like liquidity, limits on maximum and minimum members consist of: but at least one time per month. The Chairperson of aspects of customer perceptions, complaint and maturities for assets & liabilities and sensitivity of the CC may convene additional meetings if deemed 1. Head of Human Resources Chairperson customer satisfaction as well as service provided to interest rates. The Company’s interest is to ensure that necessary. & Admin customers. all elements of assets and liability management are 2. Chief Business Officer (CBO) Member properly disclosed and managed transparently and Members: 4. Procurement Committee (PROCO) 3. Head of Finance (HOF) Member accurately. The purpose of the PROCO Committee is to seek 4. Head of Risk Management Member The permanent committee members consist of: (HRM) Members: value for money in all procurement. Value for money is 1. Head of Risk Management Chairperson achieved in an open competitive environment in which 5. Senior HR Officer Secretary The ROC will appoint the ALCO Chairperson and (HRM) suppliers can be confident that their proposals will the term of office is for three years from the date of Meeting: 2. Chief Executive Officer (CEO) Member be assessed on merit. It does not automatically mean appointment. The ALCO will comprise of the following 3. Chief Business Officer (CBO) Member “lowest prices”; it incorporates and considers fitness Meeting shall be held as and when appropriate. The 4. Head of Human Resource Member Members: for purpose; fair market price; return on investment; Chairperson of the committee may convene additional And Admin Member whole-of-life costs; timely delivery; post-delivery meetings if deemed necessary. 5. Legal Officer and Compliance Secretary 1. Chief Executive Officer (CEO) Chairman support; environment sustainability; social 2. Chief Business Officer (CBO) Member
12 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 13 RISK MANAGEMENT CODE OF CONDUCT
In 2017, 100 percent of Funan’s shares has been conducted regular trainings and timely take corrective of market standards. At the core of these efforts are This Code of Conduct sets ethical standard for Funan transferred to Cambodia Post Bank Plc. With the action the misconduct of staff through the finding report integrity issues and the reputation risk the company Microfinance Plc. and our employees to embrace and technical supports from Cambodia Post Bank Plc., by credit control team. Robust MIS for credit product faces in its activities. The independent unit has been promote aligned to Funan’s core values. The principle Funan has been reformed the corporate governance and customer segments are regularly monitored to apointed and gotten approval from BoD and NBC contained in this Code of Conduct govern employee determine credit risk management strategies such as respectively to monitor and implement the compliance in accordance with regulation; developed Risk behavior to act professionally, transparency, integrity, credit stress test, Measurement of concentration of risk program of the company. Management Framework, created new policies. These conflict of interest, confidentiality of information, secret by customer segment and Risk transition measurement have been monitored the implementations frequently The compliance program of the company has the following: commission and bribery/thief, discrimination, money by customer segment, etc. Loan portfolio prevention by senior management team and Board of Directors laundry. This Code also provides guideline to assist methods are also being developed to apply across a). Legal compliance: Funan Microfinance PLc. to ensure the sustainable transformational process employees in understanding their obligation and institutions. has fully adhered to relevant laws and regulation. and development of company. After Risk Management creates the company culture while they are coming Funan Microfinance PLc. has created the compliance Framework and policies have been placed in to from the cross culture. OPERATIONAL RISK MANAGEMENT checklist to evaluate the performance of the company. implementation, especially in 2018, the senior Independent function of legal and compliance is the management team was taking more efforts on internal Funan Microfinance PLc. has been building a robust main facilitator and monitoring the implementation Operational Risk Framework including an Operational control enforcement through implementing of Risk of the whole company in term of legal/ regulatory Risk Management policy, a loss data collection Control Self-Assessment (RCSA), building risk culture compliance. system, and key risk indicators (KRIs) to monitor risk across the company, providing regular refreshment exposures. In addition, the company has implemented b). Whistleblowing: The Company is committed and training all staffs to ensure the well awareness and risk and control self-assessment (RCSAs) activities to to achieving and maintaining the highest standards compliancy. help constitute a risk culture in operational risk control of openness, probity and accountability. Either In 2018, we hosted the regulator on-site visit from across Funan. There are on-going RCSA workshops stakeholders or employees at all levels are expected National Bank of Cambodia to review FUNAN’s delivered to all functions and branches to enhance to conduct themselves with integrity, impartiality and daily operation, the prudential policies and other Operational Risk Management practices. Loan honesty. The implementation has been enforce within compliances; we received few recommendations for Origination System (LOS) is in developing process in the whole company to encourage the company staff other to operationalize more efficient and effective. the enhancement. to report the significant matters which may include but are not confined to: The external audit report certifies our reliable financial LIQUIDITY RISK MANAGEMENT report, compliancy with law and regulation and the • Breach of legal or regulatory requirements; Funan fully monitors its liquidity position with monitoring acceptable level of risk management for FUNAN. • Malpractice, impropriety or fraud relating to internal metrics such as cash flow analysis, maximum cash miscarriage of justice; controls, accounting, auditing outflows, and liquidity stress tests. These practices CREDIT RISK MANAGEMENT and Tinancial matters; have been supporting the company in forecasting • Potential conflict of interest situation; To assure well-managed on credit risk in a satisfactory and reacting smoothly and effectively in normal and • Endangerment of the health and safety of an level and enhancing market target segment of Funan stressed scenarios and also help the company maintain individual; Microfinance Plc., the renewal credit program has been a sound liquidity position. • Damage caused to the environment; reviewed and approved by the Board of Directors COMPLIANCE • Violation of rules of conducts applicable within the annually. This credit program is developed to reflect Company; to law & regulatory aspects, risk acceptant level, and Funan Microfinance PLc. is committed to follow • Improper conduct or unethical behavior; introducing cap for portfolio diversification to manage best practices and market standards in areas of • Deliberate concealment of any of the above likely credit exposure. Funan functions credit underwriter accountability, transparency and business ethics in to prejudice the standing of the company. team to review and screening loan proposals to order to promote sustainability. Good governance and follow with risk acceptant criteria of credit policy. We corporate social responsibility form an integral part
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2
LEADERSHIP
Organizational Structure Chairman’s Message Chief Executive Officer’s Message Board of Directors Executive Management
Consumption Loan Business Loan Agriculture Loan
16 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 17 ORGANIZATIONAL STRUCTURE
AR RE R
R REM M A
M Chief Executive Officer
E H HR A A RM
M H Chief Business Officer
M �ក លី �ជីង M M M S M M Head of HR. & Admin Acting Head of IT Acting Head of Operation Head of Risk Mgt. �យក��តិបត�ិប���កវ����ព័ត៌�ន Head of Finance Head of Internal Audit
M S S R M M M S M M M S M Risk Mgt. Manager Acting Product & Marketing Manager Finance Manager Legal & Compliance Lending Manager Treasury Manager Audit Manager Unit Manager
18 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 19 MESSAGE FROM CHAIRMAN
To reach the poor, promoting access to microfinance Due to the new coronavirus disease (COVID-19) financial system in Cambodia be stronger and stronger. has been regarded as the significant mechanism pandemic, the resulting economic slowdown in the For the performance record 2019, it was very in improving socio-economic environments in major advanced economies and the People’s Republic appreciated with the financial aspects including, gross Cambodia’s post war reconstruction and rehabilitation. of China, and the country’s reduced access to export loan portfolio growth of 23% from USD46.9 Million in The microfinance sector got its start in Cambodia in markets, Cambodia’s economic growth is expected 2018 to USD58 Million in 2019. The year to date total the early 1990s. Since then, the sector has grown very to drop from 7.1% in 2019 to 2.3% in 2020. Many of asset is USD59.38 Million, 25% growth. The current impressively. The expansion of the microfinance sector garment and footwear factories file for the operational year net profit after payable tax is USD2.96 Million. in Cambodia has made it possible for borrowers to shift suspension since the beginning of 2020, effecting job from informal to formal sources of credit, especially suspension of thousand workers across the country. Last but not least, I would like to thank our dedicated among the poor and receiving the protections properly Even if the less infected cases found in Cambodia, but FUNAN team, clients, business partners, regulators, while all formal institutions are well-managed under the demand and supply shock are the key challenges in lenders and shareholders for their best effort, supervision of National Bank of Cambodia, adopting the globalization. The purchase orders from the EU cooperating, trusting and support FUNAN Microfinance the Client Protection Principles (CPP). and US have been cancelled; and the raw materials achieving a fruitful result in 2019. import is delayed that are the reasons of all factories As the subsidiary of the Cambodia Post Bank asking for suspension. The sectors are defined with Yours Sincerely, Plc, FUNAN Microfinance has played its role to serious affect by the COVID-19 including— garment complement to mass-market segment of low income and footwear industry, tourism, construction and other and rural people contributing to reduce the poverty in services. Cambodia through its mission. With 51 branches and Other branchless operation areas and the business As a Microfinance, FUNAN is ready to support our cooperation with local Payment Service Institution (PSI) clients recovering from the Crisis of new coronavirus FUNAN is reaching where is underserved especially disease pandemic affect through provide loan rural area across the country. For the past three years restructuring to ensure our clients be sustainable their NEAK OKNHA DR. PUNG KHEAV SE after the acquisition, the asset size of FUNAN have businesses. With great support from the shareholders Chairman of the Board of Director. been increasing of 69% (Y-o-Y) in line with the right both in funding source and technical assistance, demand of the segment and a proper screening to FUNAN still would be able to turn this challenges to assure loans have been provided with positive impact. opportunities gaining more trust from stakeholders including clients, regulators, lenders for the progress The growth of sector supported by economic growth, of FUNAN in the coming year. approximately around 7% in the last decades in which per capita increasing from USD786 in 2010 to USD1,621 We thank to the Government of Cambodia taking the in 2019, more than hundred percent increment, right steps to respond to the crisis, including providing resulting from the country peace and stability attracting wage support for garment workers and tax and credit lots of the tourists and investors. For instance in 2019, relief for businesses. The government has also created the Foreign Direct Investment (FDI) was increasing to the fiscal space to minimize the economic impact of USD3,592M, 45% growth comparing to the last 3 year. this crisis, especially on the most vulnerable people. The growth of tourists was around 9% increase, 39% and 61% was Chinese and non-Chinese respectively. We thank to National Bank of Cambodia, the central Increasing of investment in Cambodia is the key factor bank, for placing into action of all banks and financial for reducing the unemployment rate and stabilize institutions under its supervision to settle all challenges people income. Inflation of 1.9% in 2019 contributed to responding to the crisis benefiting to all users. Dealing the economic stability. with this experience, we are optimistic on banking and
20 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 21 CHIEF EXECUTIVE OFFICER’S MESSAGE
The Bank and financial sector is healthy and have affected by this pandemic. The National Bank of For the year of 2020, FUNAN projected to accelerate actively contributed to financial inclusion, supported Cambodia (NBC) required the Financial Institutions to its growth rate, around 11%. In this meant time, we are economic growth, and reduced the poverty in take care of the affected customers and instructed on focusing on staff capacity building, internal control Cambodia. In the last five years, Bank and Financial loan restructuring with priority sectors including hotels management, developing the Loan Origination System Institutions have been actively merged, acquired and and guesthouses, restaurants, food and beverages, (LOS), pursuing Bancassurance license and other new invested by commercial investors. For instance— garment and textile, construction, transportation and franchises development for the readiness of business in 2019, 33% of total foreign direct investment (FDI) other services. The main areas of businesses that have resilience after the crisis. inflow to Cambodia was in financial sector. The Credit been adversely affected by COVID-19 such as—First, To the end, we are grateful to thank and whish our growth has accelerated after slowing down over the financial impact: the cash flow problem, inability to customers, shareholders, regulators, staff and their past three years. In 2019, the credit growth rate was repay or renegotiate debt refinancing/ restructuring family with happiness, prosperity and successfulness. 24% as whole sector that was equivalent to Compound obligation. Second, decrease in consumption, the Annual Growth Rate (CAGR) of the last three years. people have no willing to spend; except on the Stay safe and healthy. The growth was driven by an increase in credit to main basic needs. Third, the decrease of employee construction and real-estate, consumption and trade productivity due to the social distancing, working from due to the surge of the people income. The Non- home, team splitting, reducing business dealing etc. performing loan in Banking and Microfinance sector and Forth, the supply chain issue. These business was 2% and 1% respectively. It was slightly lower than affects would lead to freeze the business operation, Yours Sincerely, 2018. suspension or bankruptcy.
FUNAN Microfinance got a break record for its financial To response this crisis, FUNAN have been placing the performances of the year 2019. Business Contingency Plan (BCP) in to implementation to ensure business operation still be usual and support Comparing to last year performance, the profitability Mr. Khou Buntry to its clients without any disruption and ensuring the was 71% increase. FUNAN asset size reached to USD59 staff well-being. Staff and clients are introducing to Chief Executive Officer million with the CAGR of 69% for the last four years. conduct temperature scan, hand sanitizing before The ROE and ROA was increased from 19.9% to 26.2% access to FUNAN offices. 14days quarantine have and 4.1% to 5.5% respectively, from 2018 to 2019. The been introduced to high-risk employee who joined big Non-Performing Loan (NPL) was 1.16% comparable to gathering of any religious or social events through the the Microfinance market as whole. working from home. FUNAN have been implementing To welcome 2020, the new pandemic originated strictly to the authority instructions on the COVID-19 in the Wuhan City of China was declared for the fighting campaign. Through our social media, hygiene outbreak and named as the new coronavirus disease or basic methods of self-protection from COVID-19 (COVID-19) by the World Health Organization (WHO). have been posting and sharing by our staff and The COVID-19 pandemic is defining as global health FUNAN fans. While FUNAN’s segment is targeting to crisis of our time and the greatest challenge, stressing low-income people for both self-employed person and every one of the countries. It has the potential to create salaried person, freezing their income as mentioned devastating social, economic and political crises that above affects would be challenging our clients to follow will leave deep scars. Cambodia was also announced their loan obligation. To ensure the sustainable of our the first case in January 2020 and then found other clients who were affected by the crisis—our Boards cases, 122 cases in total (By May 2020). All cases have have approved procedures to support affected clients been confirmed by Ministry of Health (Cambodia) for through loan restructuring. Now, some clients obtained the recovery. Almost of the sectors are correlatively approval and new obligations have been releasing.
22 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 23 BOARD OF DIRECTORS
Neak Oknha Dr. Pung Kheav Se Mr. Teo Meng Poh Philip Mr. Neo Poh Kiat Chairman of the Board of Director Vice Chairman of the Board of Director Independent Director 3 3 3 Serves as Chairman of Canadia Bank and the Overseas Philip has more than 27 years of banking and financial Poh Kiat is currently Managing Director for Advisory of the Executive Committee of DBS Kwong On Bank, Cambodian Investment Corporation, and is actively services experience of which more than 18 years were Services of Octagon Advisors. Poh Kiat was actively the Supervisory Director of DBS Asia Capital Limited involved in the investment and development activities with both Singapore and International banks. Area of involved in several of our clients` major M & A which is the investment banking subsidiary of DBS of both companies. A distinguished entrepreneur and experience spans across corporate and institutional transactions in the region. Based in Beijing and as Bank in Hong Kong. He was instrumental in the setting respected business leader in Cambodia and Canada, lending, audit and credit risk review as well as risk Managing Director of Octagon Advisors Shanghai up of DBS Securities Hong Kong and had served as Mr. Pung has served as Chairman, President, CEO management (credit & operational risks). Limited, Poh Kiat has oversight responsibility for the its Executive Director in the early 90`s. Poh Kiat holds and Board Member of several companies, including company`s consultancy projects in China. a Bachelor of Commerce (Honors) degree from the Philip has extensive experience in the international and Oriental Ship Supplies, Oriental Commercial Inc, and former Nanyang University, Singapore. regional markets having spent 7 years in China and has led Canadia Bank’s growth since 1991. He used Prior to joining Octagon Advisors, Poh Kiat was the Thailand responsible for corporate lending businesses to be a Chairman of the Association of Banks in Senior Vice President and the China Country Officer and more than 15 years covering international and Cambodia and also serves as President of Cambodia for Singapore`s United Overseas Bank, the country`s regional markets in the area of audit and credit risk Constructors Association, working closely with industry leading banking group. Based in Hong Kong, Poh review as well as risk management. leaders to guide the development of the banking and Kiat was responsible for UOB`s corporate banking construction sectors in Cambodia. relationships in the Greater China region.
Among the honors and awards Mr. Pung holds a Before joining UOB, Poh Kiat held various appointments Mahasereyvattanac Award presented by His Majesty, in Singapore`s DBS Bank, with his last held appointment Norodom Sihanouk, King-Father of Cambodia in being that of Managing Director and General Manager 2002; and “The Highest National Contribution” medal of DBS Bank`s Hong Kong branch. Concurrently, Poh awarded by Prime Minister Hun Sen, presented by His Kiat was also an Executive Director and a member Majesty, Norodom Sihamoni King of Cambodia in 2012, for the significant contributions he has made and continues to make toward the development of Cambodia.
24 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 25 BOARD OF DIRECTORS
Mr. Giang Sovann Mr. Toch Chaochek Independent Director Director 3 3 Giang Sovann is the Founder and CEO of Corporate the Canadian Institute of Chartered Accountants. He is Mr. Toch has more than 20 years’ working experience in Law and Economic Science. Governance Academy and a Member of the Complaints also a Chartered Accountant, Singapore and member Banking and Financial Sector in Cambodia. He served Mr. Toch has also attended numerous executive training & Disciplinary Panel, the Public Accountants Oversight of the Singapore Institute of Directors. several senior management levels such as Senior courses locally and abroad in the field of Banking Committee, Accounting & Corporate Regulatory Staff and Manager at Credit Division of ACLEDA Bank Mr. Giang has over 30 years of business and financial and Finance which are most related to Leadership, Authority (ACRA), and Singapore. He is also a Director Plc. before moving to be Head of Credit Department, management experience in many industries & Performance Management, Risk Management...etc. of a company listed on the Singapore Exchange. Head of Operation Department and EVP & Chief products including aerospace, Oil & Gas, petrochemical, Operation Officer of Hatha Kaksekar Micro Finance Mr. Giang was the Executive Director of the Singapore power generation, cement, coal, computer, CPO, in charge of Company Business’s Strategies, Loan Institute of Directors where he also sat on the Organizing flexible packaging, fresh fruits, real estate, sports Operational Processes, Loan Portfolio Management, Committee of the Singapore Corporate Awards and facility and F&B, timber, telecommunication, etc. He Credit Underwriting, Deposit Mobilization, Products co-managed the Best Managed Board Award for started his career as a public accountant in Canada Development and also Branch Channels Supervision. Singapore listed companies. He is an instructor on and had extensive audit & tax practice experience Beside the Banking and Finance experience, he also the subjects of Director’s Duties & Responsibilities, with a big-4 firm in both Canada and Singapore. After had 2 years in his first career started with Manufacturing Singapore Exchange Listing Manual and Code of leaving public accounting practice, he served as senior Industry as Marketing Manager. Corporate Governance. He has written many articles executives of MNC Company, regional conglomerate on the subject of independent director, internal control and Singapore listed companies. He is currently also a Board of Director of Funan and audit, and had served as lead independent director, Micro Finance Plc. since the date of acquisition. He chairman of audit committee, chairman of board risk graduated MBA in Finance and Banking in 2006 from committee, member of nominating committee and University Of Cambodia, BBA in Marketing in 1999 remuneration committee of listed company. from National University of Management, Bachelor Degree in Public Law in 1999 and also Associated Mr. Giang graduated with a Bachelor of Administration Degree in Professional Law in 1996 from Faculty of degree with Great Distinction from University of Regina, Canada, and qualified as a Chartered Accountant with
26 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 27 EXECUTIVE MANAGEMENT
Mr. Khou Buntry Mr. Moeng Sarong
Chief Executive Officer Head of Finance Joined Funan Microfinance Plc. as Head of Finance in July 2018. Prior to this, he worked He has 20 years of track record as finance professional and as a senior management at Lyhour Microfinance as Deputy Head of Finance. He has 9 years of experience in for , Banking, Microfinance Institution and International NGOs. Prior to join Funan, Mr. Accounting/Finance, mostly with FIs, which grant him with extensive experiences Buntry was Chief Financial Officer for Cambodia Post Bank for 4 years. Mr. Buntry was in financial reporting, financial planning and management, budgeting and treasury EVP & Finance Director with Hattha Kaksekar Ltd. MFI for 5 years, responsible for all management. He is holding bachelor degree in Accounting and bachelor degree in finance & treasury related activities. Prior to Hattha Kaksekar, he spent 2 years as English and recently, become an ACCA affiliate from CamEd Business School. Finance Manager for Room to Read Cambodia, 4 years as Finance Manager for Marie Stopes Cambodia and 2 years as Accountant for Canadia Bank.
He graduated MBA in Finance, Charles Sturt University, Australia and BBA in Accounting, National University of Management (Former Faculty of Business).
Mr. Han Bunhon Mr. Meang Chhun Eng Chief Business Officer Head of Internal Audit
He has 15 years’ experience in Financial Sectors before joining funan as Chief Business He has 14 years’ experience with holding several positions including 6 years as an Offiicer in june 2017, he was 4 years with CP-Bank with various positions as Sales Internal Audit Department Manager with Funan. Prior to joint Funan, He worked for 5 Manager, Branch Manager (Head Office Branch). Prior to join Cambodia Post-Bank, his years as an Internal Auditor and 3 years as a Credit Officer with PRASAC. career started with Vision Fund Cambodia (MDI) from the front line staff as Credit Officer, He graduated Master Degree in Finance and Bachelor Degree in Accounting and then promoted to be District Branch Manager, Provincial Branch Manager (Regional Finance. Manager) and Senior Provincial Branch Manager (Regional Manager) supervising 10 District Branches underneath.
He is holding Master Degree in Business Administration and obtained BBA in Accounting and Finance.
Mr. Kong Vannak Mr. Vong Ponnreay Head of Risk Management Head of Human Resources & Administration
He has 12 years’ experience in financial sectors with holding several positions and He has experience in human resources management and administration for 11 years with FUNAN, he is Head of Risk Management. Prior to joint Funan MFI, he worked 1 by starting from the Human Resources Officer role. During this 11 years experience, year as Credit Manager with CP-bank, 2 years as Head of Credit Department with Ly he has been performing and earning such professional experiences from 05 Hour Leasing Plc, 2 years as Sub Branch Manager with HKL MFI. different companies such as Hagar International Organization for 03 years as Senior Recruitment & Employee Relations Officer, Huawei Technologies (Cambodia) for 02 He graduated Bachelor Degree in Accounting and English Literature. years as Senior Recruitment, Employee Relations and Training Specialist, Tan Chong Motor (Cambodia) for 02 years as Deputy HR Manager, British American Tobacco (Cambodia) for 02 years as Employee Services Manager and HR Ops Lead, and Newa Insurance (Cambodia) for almost two years as HR & General Affairs Manager.
He graduated Bachelor & Master degree in Business Administration.
28 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 29 3
CORPORATE SOCIAL RESPONSIBILITY
Corporate Social Responsibility
Financial Education
30 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 31 CORPORATE SOCIAL RESPONSIBILITY
In line with the Vision and Mission of Funan turn Preah Sihanuk province to be an attractive to clean the city. The local authority provided Microfinance PLc to improve the living tourist destination again especially among his impressive remarks to everyone joining this conditions of Cambodian people, the business Cambodian people. FUNAN initiated one program campaign and regarded as model for his villagers named “The Blue Sea Campaign” to engage all to stay clean and well-managed their rubbish. strategy is integrated into social responsibility people especially local people in the city and activities. Village & Commune authorities to join with FUNAN CLEAN CITY team of Kampot Region. Everyone was equipped with big plastic bag, glove; went down from one To support the local authority announcement to to another village then moved along the beach “With FUNAN With Hope”.
32 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 33 CORPORATE SOCIAL RESPONSIBILITY
KHUNTHEAK-BOPHA DONATION BLOOD DONATION “With FUNAN With Hope”. Khuntheak Bopha Donation was initiated by Neak Oknha Dr. Pung Kheav se, and has been To see the traffic accidence still be the key contributing for 2 years, since 2018. issues cause to many people death and injures—blood donation program under our FUNAN Microfinance and other companies under Canadia Group contribute for Khuntheak- slogan “with FUNAN, with hope” has been Bopha donation on monthly basis. The contribution is a part to help Khuntheak-Bopha to continue done for three consecutive years. Many its mission in saving Cambodian children. USD1.25 with total number of staffs, is calculated for people from our staffs and management the monthly contribution. FUNAN’s staffs are also a part of the donation while they contribute team were participated in the program. willingly with 40 percent. We are a part of our beautiful society.
34 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 35 FINANCIAL EDUCATION
FINANCIAL EDUCATION CLIENT SUCCESS Funan Microfinance Plc. believes that customer succeeds, Funan succeed. Therefore, financial In line with the Vision and Mission of Funan Microfinance PLc to improve the living conditions education has been promoted frequently by Funan’s staffs. The topic consists of financial literacy, of Cambodian people, the business strategy is integrated into social responsibility activities. how to diversify sources of income and reducing expense, saving for emergency case. That is And the Credit Program is strictly implemented to ensure Funan’s clients are not in over- the kind of cooperate social responsibility helping people to improve their financial health. Our indebtedness and guarantee their success. We strive to continue our sustainable community activities are reflected in Funan’s Vision statement— to be the best Microfinance Institution (MFI) development through the evaluation and management of business operations in order to have that enable success and enriches lives of Cambodian people. a positive impact on the whole society. We support initiatives that generate long-term benefits and benefits for the community.
36 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 37 STAFF ACTIVITIES AND WELFARES
2019 Annual Assembly
Sports Staffs Welfares
38 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 39 STAFF ACTIVITIES AND WELFARES(CONTINUED)
• Leaflet Promotion
Leadership Training
Clean City
40 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 41 ៤
AUDITED FINANCIAL STATEMENTS
Report of the Board of Directors Report of the independent auditors Statement of financial position Statement of comprehensive income Statement of changes in equity Statement of cash flows Notes to the financial statements
42 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 43 REPORT OF THE BOARD OF DIRECTORS
The Board of Directors (“the Directors”) has pleasure DIVIDENDS enforceable or is likely to become enforceable within the existed to which the Company is a party with the object of in submitting their report together with the audited period of twelve months after the end of the financial year enabling Directors of the Company to acquire benefits by financial statements of Funan Microfinance Plc. (“the No dividend was declared or paid and the Directors do not which, in the opinion of the Directors, will or may materially means of share purchase option. Company”) for the year ended 31 December 2019. recommend any dividend to be paid for the year. affect the ability of the Company to meet its obligations as Since the end of the previous financial year, no Director of RESERVES AND PROVISIONS and when they fall due. PRINCIPAL ACTIVITIES the Company has received or become entitled to receive There were no material movements to or from reserves and EVENTS SINCE THE REPORTING any benefit (other than a benefit included in the aggregate The principal activity of the Company is to provide loans and provisions during the financial year other than as disclosed in DATE amount of emoluments received or due and receivable by other financial services to local customers through its head the financial statements. the Directors as disclosed in the financial statements) by office in Phnom Penh and its various provincial and district At the date of this report, except as disclosed in the Note 29 reason of a contract made by the Company or a related offices in the Kingdom of Cambodia. BAD AND DOUBTFUL LOANS to the financial statements, there have been no significant corporation with a firm of which the Director is a member, events occurring after the reporting date which would Before the financial statements of the Company were or with a company in which the Director has a substantial FINANCIAL RESULTS require adjustments or disclosures to be made in the financial prepared, the Board of Directors took reasonable steps to financial interest other than as disclosed in the financial The financial results of the Company for the year ended 31 statements. ascertain that action had been taken in relation to the writing statements. December 2019 were as follows: off of bad loans and the making of allowance for doubtful THE BOARD OF DIRECTORS loans, and satisfied themselves that all known bad loans had The members of the Board of Directors during the year and been written off and adequate allowance had been made for at the date of this report are: RESPONSIBILITIES OF DIRECTORS bad and doubtful loans. IN RESPECT OF THE FINANCIAL Neak Oknha Pung Kheav Se STATEMENTS 2019 2018 At the date of this report, the Directors are not aware of any Chairman The Directors are responsible for ascertaining that the US$ US$ circumstances, which would render the amount written off for Mr. Teo Meng Poh Philip financial statements present fairly, in all material respects, bad loans, or the amount of allowance for doubtful loans in Vice Chairman (appointed on 11 January 2019) the financial position of the Company as at 31 December the financial statements of the Company, inadequate to any Mr. Lee Meng Teck Victor material extent. 2019, and its financial performance and its cash flows for the Profit before income tax 3,710,162 2,495,986 Vice Chairman (resigned on 13 December 2018) year then ended. In preparing these financial statements, CURRENT ASSETS Mr. Neo Poh Kiat the Directors are required to: Income tax expense (749,514) (445,861) Independent Director Before the financial statements of the Company were Mr. Giang Sovann • adopt appropriate accounting policies which are prepared, the Directors took reasonable steps to ensure that Independent Director supported by reasonable and prudent judgments any current assets, other than loans, which were unlikely to NET PROFIT 2,960,648 2,050,125 Mr. Toch Chaochek and estimates and then apply them consistently; be realised in the ordinary course of business at their values OF THE YEAR Director as shown in the accounting records of the Company had • comply with Cambodian International Financial been written down to amounts which they might be expected ITEMS OF AN UNUSUAL NATURE Reporting Standards for Small and Medium- 2019 2018 sized Entities (“CIFRS for SMEs”) or, if there to realise. The results of the operations of the Company for the financial KHR’000 KHR’000 have been any departures in the interest of true At the date of this report, the Directors are not aware of any year were not, in the opinion of the Directors, materially (NOTE 5) (NOTE 5) and fair presentation, ensure that these have circumstances, which would render the values attributed to affected by any item, transaction or event of a material and been appropriately disclosed, explained and the current assets in the financial statements of the Company unusual nature. quantified in the financial statements; Profit before income tax 15,033,577 10,096,265 misleading. There has not arisen in the interval between the end of the • maintain adequate accounting records and an CONTINGENT AND OTHER financial year and the date of this report any item, transaction Income tax expense effective system of internal controls; (3,037,031) (1,803,508) LIABILITIES or event of a material and unusual nature likely, in the opinion of the Board of Directors, to affect materially the results of • prepare the financial statements on a going At the date of this report, there does not exist: the operations of the Company for the current financial year concern basis unless it is inappropriate to assume NET PROFIT 11,996,546 8,292,757 (a) any charge on the assets of the Company which in which this report is made. that the Company will continue operations in the OF THE YEAR has arisen since the end of the financial year which DIRECTORS’ INTERESTS foreseeable future; and secures the liabilities of any other person; and • control and direct the Company effectively in all SHARE CAPITAL None of the Directors held or dealt directly in the shares of (b) any contingent liability in respect of the Company material decisions affecting the operations and the Company during the financial year. There is no change in the shareholding structure during the that has arisen since the end of the financial year other performance and ascertain that such have been year. Refer to Note 16 for details. than in the ordinary course of its business operations. DIRECTORS’ BENEFITS properly reflected in the financial statements.
No contingent or other liability of the Company has become During and at the end of the financial year, no arrangements The Board of Directors confirms that they have complied with
44 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 45 REPORT OF THE INDEPENDENT AUDIT
the above requirements in preparing the financial statements OPINION OTHER INFORMATION
We have audited the financial statements of Funan Management is responsible for the other information. The APPROVAL OF THE FINANCIAL STATEMENTS Microfinance Plc. (“the Company”), which comprise the other information comprises the Report of the Board of statement of financial position as at 31 December 2019, the Directors as set out on pages 1 to 4, but does not include the We, hereby approve the accompanying financial statements as set out on pages 8 to 48 which, in our opinion, present fairly, in statements of comprehensive income, changes in equity and financial statements and our auditor’s report thereon. all material respects, the financial position of the Company as at 31 December 2019, and its financial performance and its cash cash flows for the year then ended, and notes, comprising flows for the year then ended in accordance with CIFRS for SMEs. Our opinion on the financial statements does not cover significant accounting policies and other explanatory the other information and we do not express any form of information as set out on pages 8 to 48 (hereafter referred as assurance conclusion thereon. On behalf of the Board of Directors, “the financial statements”). In connection with our audit of the financial statements, our In our opinion, the accompanying financial statements responsibility is to read the other information and, in doing present fairly, in all material respects, the financial position so, consider whether the other information is materially of the Company as at 31 December 2019, and its financial inconsistent with the financial statements or our knowledge
K FUNAN MICROFINANCE Plc. performance and its cash flows for the year then ended IN I A obtained in the audit or otherwise appears to be materially GD OD in accordance with Cambodian International Financial OM OF CAMB misstated. Reporting Standards for Small and Medium-sized Entities (“CIFRS for SMEs”). If, based on the work we have performed on the other information obtained prior to the date of this auditors’ report, Neak Oknha Dr. Pung Kheav Se Mr. Khou Buntry BASIS FOR OPINION we conclude that there is a material misstatement of this Chairman of the Board of Directors Chief Executive Officer We conducted our audit in accordance with Cambodian other information, we are required to report that fact. We International Standards on Auditing (“CISAs”). Our have nothing to report in this regard. responsibilities under those standards are further described RESPONSIBILITIES OF MANAGEMENT Phnom Penh, Kingdom of Cambodia in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of AND THOSE CHARGED WITH the Company in accordance with the ethical requirements GOVERNANCE FOR THE FINANCIAL 25 March 2020 that are relevant to our audit of the financial statements STATEMENTS in Cambodia, and we have fulfilled our other ethical Management is responsible for the preparation and fair responsibilities in accordance with these requirements. We presentation of the financial statements in accordance with believe that the audit evidence we have obtained is sufficient CIFRS for SMEs, and for such internal control as management and appropriate to provide a basis for our opinion. determines is necessary to enable the preparation of financial OTHER MATTER statements that are free from material misstatement, whether due to fraud or error. As stated in Note 28 to the financial statements, the Company adopted CIFRS for SMEs on 1 January 2019 with a transition In preparing the financial statements, management is date of 1 January 2018. These standards were applied responsible for assessing the Company’s ability to continue retrospectively to the comparative information in these as a going concern, disclosing, as applicable, matters related financial statements, including the statements of financial to going concern and using the going concern basis of position as at 31 December 2018 and 1 January 2018, and the accounting unless management either intends to liquidate statements of comprehensive income, changes in equity and the Company or to cease operations, or has no realistic cash flows of the Company for the year ended 31 December alternative but to do so. 2018 and related explanatory notes. Those charged with governance are responsible for We were not engaged to audit on the restated comparative overseeing the Company’s financial reporting process. information and it is unaudited. Our responsibilities in respect AUDITORS’ RESPONSIBILITIES FOR of this comparative information is to determine whether the financial statements include the comparative information THE AUDIT OF THE FINANCIAL required by CIFRS for SMEs and whether such information is STATEMENTS appropriately classified. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
46 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 47 STATEMENT OF FINANCIAL POSITION
material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable as at 31 December 2019 assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with CISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, 2019 2018 2019 2018 individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. KHR’000 KHR’000 As part of an audit in accordance with CISAs, we exercise professional judgment and maintain professional skepticism throughout ASSETS NOTE US$ US$ (NOTE 5) (NOTE 5) the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, 6 1,634,897 619,601 6,662,205 2,489,557 design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and Statutory deposits appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from 7 400,000 400,000 1,630,000 1,607,200 fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, Loans to customers 8 55,779,023 46,263,849 227,299,519 185,888,145 misrepresentations, or the override of internal control. Other assets 9 382,782 316,768 1,559,837 1,272,774 • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are Property and equipment 10 599,106 229,538 2,441,357 922,284 appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Intangible assets 11 105,545 142,254 430,096 571,577
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and Deferred tax assets 15 441,779 355,656 1,800,249 1,429,026 related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast TOTAL ASSETS 59,343,132 48,327,666 241,823,263 194,180,563 significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements LIABILITIES AND or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence SHAREHOLDERS’ EQUITY obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern. Liabilities
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and Borrowings 12 44,789,889 36,820,765 182,518,798 147,945,834 whether the financial statements represent the underlying transactions and events in a manner that achieves fair Other liabilities 13 692,215 650,843 2,A820,772 2,615,087 presentation. Provision for employee benefits 14 53,524 166,729 218,110 669,917 We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Current income tax liability 15 716,875 559,348 2,921,266 2,247,429 Total liabilities 46,252,503 38,197,685 188,478,946 153,478,267 For KPMG Cambodia Ltd Shareholders’ equity
Share capital 16 8,000,000 8,000,000 32,296,000 32,296,000
Regulatory reserves 17 251,959 279,453 1,016,114 1,128,152
Retained earnings 4,838,670 1,850,528 19,595,568 7,486,984
Taing Youkfong Currency translation reserves - - 436,635 (208,840) Partner Total shareholders’ equity 13,090,629 10,129,981 53,344,317 40,702,296 TOTAL LIABILITIES AND Phnom Penh, Kingdom of Cambodia SHAREHOLDERS’ EQUITY 59,343,132 48,327,666 241,823,263 194,180,563 25 March 2020
The accompanying notes form an integral part of these financial statements.
48 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 49 - - STATEMENT OF COMPREHENSIVE INCOME (16,402) 645,475 (Note 5) 8,292,757 KHR’000 11,996,546 8,276,355 53,344,317 32,425,941 12,642,021
for the year ended 31 December 2019 40,702,296 40,702,296 40,702,296 - - - - 2019 2018 2019 2018 US$ 2,050,125 8,079,856 2,050,125 2,050,125 2,960,648 2,960,648 10,129,981 10,129,981 10,129,981 10,129,981
KHR’000 KHR’000 13,090,629 Total ASSETS NOTE US$ US$ (NOTE 5) (NOTE 5) - - - - (16,402) (16,402) 645,475 436,635 645,475 (192,438) (208,840) Operating income (Note 5) KHR’000 (208,840) Interest income 18 12,191,072 10,114,945 49,398,224 40,914,953 ------Interest expense 19 (3,125,915) (2,498,234) (12,666,208) (10,105,357) US$ Net interest income 9,065,157 7,616,711 36,732,016 30,809,596 Other operating income 20 374,989 298,745 1,519,455 1,208,424 Currency translation reserves - -
7,915,456 38,251,471 32,018,020 Net operating income 9,440,146 112,038 322,379 (Note 5) 7,164,605 KHR’000 8,292,757 (1,128,152) 12,108,584 11,996,546 7,486,984 7,486,984 Net impairment losses on 19,595,568 - - financial assets 21 (367,504) (298,076) (1,489,126) (1,205,717) US$ 79,856 Personnel expenses 22 (3,131,197) (3,350,981) (12,687,610) (13,554,718) 27,494 2,988,142 2,050,125 1,770,672 1,770,672 (279,453) Retained earnings Retained 2,960,648 1,850,528 1,850,528 4,838,670 Other expenses 23 (2,231,283) (1,770,413) (9,041,158) (7,161,320) 1,850,528 - - -
Profit before income tax 3,710,162 2,495,986 15,033,577 10,096,265 1,128,152 1,128,152 1,128,152 1,128,152 1,128,152 (112,038) (112,038) (Note 5) 1,016,114 1,016,114 1,128,152 1,128,152 KHR’000 - - Income tax expense 15 (749,514) (445,861) (3,037,031) (1,803,508) - 8,292,757
Net profit for the year 2,960,648 2,050,125 11,996,546 US$ (27,494) (27,494) 279,453 279,453 279,453 279,453 251,959 279,453 279,453 Regulatory reserves Regulatory - - - - Other comprehensive - - income/(loss) (Note 5) 32,296,000 KHR’000 32,296,000 32,296,000 32,296,000 32,296,000 32,296,000 - - - -
Currency translation - - differences - - 645,475 (16,402) US$ Share capital 8,000,000 8,000,000 8,000,000 Total comprehensive income 8,000,000 8,000,000 8,276,355 for the year 2,960,648 2,050,125 12,642,021
The accompanying notes form an integral part of these financial statements. 2019 STATEMENT OF CHANGES IN EQUITY OF CHANGES IN EQUITY STATEMENT for the year ended 31 December 2019 At 1 January 2018 At comprehensive income Total Net profit for the year to regulatory reserves Transfer Other comprehensive income Currency translation differences 31 December 2018 At 1 January 2019 At comprehensive income Total Net profit for the year to regulatory reserves Transfer Other comprehensive income Currency translation differences 31 December 2019 At
50 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 51 STATEMENT OF CASH FLOWS STATEMENT OF CASH FLOWS (CONTINUED) for the year ended 31 December 2019 for the year ended 31 December 2019
2019 2018 2019 2018 2019 2018 2019 2018
KHR’000 KHR’000 KHR’000 KHR’000 US$ US$ (NOTE 5) (NOTE 5) US$ US$ (NOTE 5) (NOTE 5)
Cash flow from operating Net cash used in investing activities activities (535,978) (190,636) (2,171,783) (771,123) Net profit for the year 2,960,648 2,050,125 11,996,546 8,292,757 Cash flows from financing Adjustments for: activities
Net interest income (9,065,157) (7,616,711) (36,732,016) (30,809,596) Repayments of borrowings (995,520) (995,520) (4,033,847) (4,026,878) Net impairment losses on Proceeds from borrowings 8,964,644 14,816,535 36,324,737 59,932,885 financial assets 367,504 298,076 1,489,126 1,205,717 Net cash generated from Depreciation and amortisation 203,119 191,544 823,038 774,795 financing activities 7,969,124 13,821,015 32,290,890 55,906,007 Income tax expense 749,514 445,861 3,037,031 1,803,508 Net increase/ (decrease) in cash and cash equivalents 1,015,296 (1,431,054) 4,113,978 (5,788,614) Provision for employee benefits 22,079 166,729 89,464 674,419 Cash and cash equivalents Pension fund expense - (31,545) - (127,600) at 1 January 619,601 2,050,655 2,489,557 8,278,494 Gain on disposal of property - (10,706) - (43,306) and equipment Currency translation (4,506,627) (19,296,811) (4,762,293) (18,229,306) difference - - Changes in: 58,670 (323)
Loans to customers (18,085,723) (39,953,384) (73,156,750) (9,860,164 Cash and cash equivalents Other assets (66,014) (39,902) (267,489) (161,404) at 31 December (Note 6) 1,634,897 619,601 6,662,205 2,489,557 Other liabilities 41,372 322,482 167,639 1,304,439 Cash used in operations (14,647,099) (22,309,770) (59,350,045) (90,243,021) The accompanying notes form an integral part of these financial statements. Net interest received 9,049,520 7,482,593 36,668,654 30,267,089 Employee benefits paid (135,284) (80,329) (548,171) (324,931) Income tax paid (684,987) (153,927) (2,775,567) (622,635) Net cash used in operating activities (6,417,850) (15,061,433) (26,005,129) (60,923,498)
Cash flows from investing activities Acquisition of property and equipment (497,478) (170,300) (2,015,781) (688,864) Acquisition of intangible assets (38,500) (34,979) (156,002) (141,490) Proceed from disposal of equipment - 14,643 - 59,231
52 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 53 NOTES TO THE FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) for the year ended 31 December 2019
These notes form an integral part and should be read in The financial statements of the Company were authorised for The Company uses the following exchange rates: conjunction with accompany financial statements. issue by the Board of Directors on 25 March 2020.
1. REPORTING ENTITY Details of the Company’s accounting policies are included Closing rate Average rate in Note 27. Funan Microfinance Plc. (“the Company”), a licensed micro- 31 December 2019 US$1 = KHR 4,075 KHR 4,052 finance institution, was incorporated in the Kingdom of 3. FUNCTIONAL AND PRESENTATION 31 December 2018 US$1 = KHR 4,018 KHR 4,045 Cambodia and registered with the Ministry of Commerce as a CURRENCY 1 January 2018 US$1 = KHR 4,037 N/A public limited liability company under registration number Co. The Company transacts its business and maintains its 2133 KH/2015 dated 17 June 2015. The Company obtained accounting records in two currencies, Khmer Riel (“KHR”) its license to operate as a micro-finance institution from the and United States Dollars (“US$”). Management has 6. CASH AND CASH EQUIVALENTS National Bank of Cambodia (“NBC”) on 11 August 2015. determined the US$ to be the Company’s functional and The Company operates in 51 offices located in Phnom presentation currency as it reflects the economic substance 2019 2018 2019 2018 Penh and 18 provinces, namely, Takeo, Prey Veng, Pursat, of the underlying events and circumstances of the Company. Kampong Cham, Kampot, Siem Reap, Svay Rieng, Mondulkiri, These financial statements are presented in US$, which KHR’000 KHR’000 Kampong Speu, Kampong Chhnang, Kampong Thom, is the Company’s functional currency. All amounts have A. Cash on hand US$ Banteay Meanchey, Battambang, Preah Vichea, Kratie, Stung been rounded to the nearest dollar, except when otherwise US$ (NOTE 5) (NOTE 5) Treng, Ratanak Kiri, and Preah Sihanouk. indicated. The principal activity of the Company is to provide loan 4. USE OF ESTIMATES AND Head office 10,526 7,025 42,893 28,226 to improve living standards in term of rural development JUDGEMENTS Branches 335,072 282,473 1,365,419 1,134,977 through its head office in Phnom Penh and its various offices In preparing these financial statements, management has in the Kingdom of Cambodia. 345,598 289,498 1,408,312 1,163,203 made judgments, estimates and assumptions that affect the The Company’s head office is located at No. 95, Preah application of the Company’s accounting policies and the B. Placements with banks Monivong Blvd, Corner of Street 118, Sangkat Monorom, reported amounts of assets, liabilities, income and expenses. Khan 7 Makara, Phnom Penh, Kingdom of Cambodia. Actual results may differ from these estimates.
As at 31 December 2019, the Company had 622 employees Estimates and underlying assumptions are reviewed on Savings accounts 1,100,261 260,892 4,483,564 1,048,264 an ongoing basis. Revisions to estimates are recognised (2018: 646 employees). Current accounts 189,038 69,211 770,329 278,090 prospectively. 2. BASIS OF ACCOUNTING 1,289,299 330,103 5,253,893 1,326,354 Information about assumptions and estimation uncertainties The financial statements have been prepared in accordance that have a significant risk of resulting in a material adjustment Cash and cash equivalents- gross 1,634,897 619,601 6,662,205 2,489,557 with Cambodian International Financial Reporting Standards in the year ending 31 December 2019 is set out below in (“CIFRS for SMEs”). These are the first financial statements relation to the impairment of financial instruments and in the prepared in accordance with CIFRS for SMEs and Section 35 following notes in relation to other areas: Transition to the CIFRS for SMEs has been applied. • 27G(vii) – identification and measurement of impairment. 2019 2018 2019 2018 In the previous financial years, the financial statements 5. TRANSLATION OF UNITED KHR’000 KHR’000 were prepared in accordance with Cambodian Accounting STATES DOLLARS INTO KHMER RIEL Standards (“CAS”) and the guidelines of the National (i) By maturity: US$ US$ (NOTE 5) (NOTE 5) Bank of Cambodia (“NBC”) relating to the preparation and The financial statements are expressed in United States presentation of the financial statements (“Cambodia GAAP”). Dollars. The translations of United States Dollars amounts into Khmer Riel are included solely for compliance with the The Company has applied consistently to all periods guidelines of the National Bank of Cambodia relating to the Within 1 month 1,289,299 330,103 5,253,893 1,326,354 presented in these financial statements and in preparing the preparation and presentation of financial statements. opening CIFRS for SMEs statement of financial position at 1 (ii) By relationship: Assets and liabilities are translated at the closing rate as January 2018 for the purposes of the transition to CIFRS for at the reporting date. The statements of comprehensive 108,800 2,701,941 437,159 SMEs. Related party 663,053 income and cash flows are translated into KHR using the 2,551,952 889,195 An explanation of how the transition to CIFRS for SMEs has average rate for the year. Exchange differences arising Non-related party 626,246 221,303 from the translation are recognised as “Currency translation affected the reported financial position, financial performance 1,289,299 330,103 5,253,893 1,326,354 and cash flows of the Company is provided in Note 28. difference” in the other comprehensive income.
54 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 55 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 6. CASH AND CASH EQUIVALENTS (CONTINUED) 8. LOANS TO CUSTOMERS (CONTINUED) (iii) By interest rate (per annum): The movements in allowance for impairment losses of loans to customers were as follows:
2019 2018 2019 2018 2019 2018
KHR’000 KHR’000 Savings accounts 0.00% - 0.80% 0.00% - 2.00% US$ US$ (NOTE 5) (NOTE 5) Current accounts 0.0% - 2.00% 0.015% - 2.50% Collective impairment
At 1 January 449,540 270,395 1,806,252 1,093,748 7. STATUTORY DEPOSITS Allowance for the year (Note 21) 443,774 391,559 1,798,172 1,583,856 Under NBC Prakas B7-01-136 dated 15 October 2001, micro-finance institutions are required to maintain a statutory Written off during the year (378,605) (212,414) (1,534,107) (853,479) deposit of 5% of registered capital with the NBC. This deposit is not available for use in the Company’s day-to-day operations but is refundable when the Company voluntarily ceases to operate the business in Cambodia. Currency translation difference - - 27,122 (17,873) The statutory deposit maintained with the NBC in US$ bears interest at 0.5% per annum. At 31 December 514,709 449,540 2,097,439 1,806,252
8. LOANS TO CUSTOMERS The movements in allowance for impairment losses of loans to customers were as follows:
2019 2018 2019 2018 2019 2018 2019 2018 KHR’000 KHR’000 KHR’000 KHR’000 US$ US$ (NOTE 5) (NOTE 5) US$ US$ (NOTE 5) (NOTE 5)
Individual loans 56,275,807 46,719,633 229,323,914 187,719,485 A. By maturity: Staff loans 265,424 235,322 1,081,603 945,524 Within 1 month 121,312 124,172 494,346 498,923 Group loans - 14,190 - 57,015 2 to 3 months 212,225 181,370 864,817 728,745 56,541,231 46,969,145 230,405,517 188,722,024 4 to 12 months 2,509,502 3,230,039 10,226,221 12,978,297 Unearned processing fee (787,344) (714,868) (3,208,427) (2,872,340) Over 12 months 53,450,693 43,177,808 217,811,574 173,488,432 Accrued interest receivable 622,650 525,882 2,537,299 2,112,994 56,293,732 46,713,389 229,396,958 187,694,397 Unwinding interest (82,805) (66,770) (337,431) (268,281) Loans to customers-gross 56,293,732 56,293,732 229,396,958 187,694,397 B. By economic sector:
Agriculture 12,699,376 8,576,023 51,749,957 34,458,460 Less: Allowance for impairment losses Trade and Commerce 9,071,476 7,068,651 36,966,265 28,401,840 (514,709) (449,540) (2,097,439) (1,806,252) Services 2,391,421 2,028,205 9,745,041 8,149,328 Loans to customers-net 55,779,023 46,713,389 227,299,519 185,888,145 Transportation 1,818,050 1,180,861 7,408,554 4,744,699 Construction 2,143,496 2,820,884 8,734,746 11,334,312 Household/Family 28,019,019 24,740,283 114,177,502 99,406,457 Others 150,894 298,482 614,893 1,199,301 56,293,732 46,713,389 229,396,958 187,694,397
56 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 57 - NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 51,573 29,990 518,291 (Note 5) 1,918,771 (30,552) (30,552) KHR’000 2,015,781 2,841,055 2,441,357 4,877,857 8. LOANS TO CUSTOMERS (CONTINUED) 2,436,500
Loans to customers-gross are analysed as follows: (continued) - - - Total 2019 2018 2019 2018 US$ (7,540) 597,914 597,914 (7,540) 127,910 127,910 477,544 599,106 599,106 497,478 707,082
KHR’000 KHR’000 1,197,020 US$ US$ (NOTE 5) (NOTE 5) ------US$ C. By relationship: 12,725 Work in Work (12,725) Progress External customers 56,028,308 46,478,067 228,315,355 186,748,873 Staff loans 265,424 235,322 1,081,603 945,524 - - 56,293,732 46,713,389 229,396,958 187,694,397 - US$ (1,315) 5,074 (1,315) 51,475 12,160 12,160 72,551 13,990 76,310 62,320 Furniture and fixtures 2019 2018 - -
D. By interest rate (per annum) US$ 12,725 (2,025) 62,129 62,129 343,909 407,337 461,718 461,718 (2,025) 240,124 761,946 External customers 13.20% -18.00% 13.2% - 60.00% 300,228 Computers Staff loans 10.00% 10.00% - 15.60%
- - - Office 61,138 61,138 13,536 49,533 (4,200) (4,200) 15,805 89,796 80,460 28,658 28,658 Equipment - - - - -
9. OTHER ASSETS US$ Motor vehicles 35,535 25,185 25,185 165,786 48,056 48,056 153,265 128,080 2019 2018 2019 2018 201,321
KHR’000 KHR’000 - - - - - US$ US$ (NOTE 5) (NOTE 5) US$
8,332 31,651 12,631 12,631 20,963 20,963 67,647 35,996 46,684 46,684 Deposits and prepayments 368,071 299,229 1,499,890 1,202,302 Leasehold
Others 14,711 17,539 59,947 70,472 Improvements
382,782 316,768 1,559,837 1,272,774 TY AND EQUIPMENT 2019 PROPER
difference difference Less: Accumulated Less: depreciation 1 January 2019 At Depreciation for the year off Written Currency translation 31 December 2019 At Carrying amounts 31 December 2019 At Cost 1 January 2019 At Additions Transfer off Written Currency translation 31 December 2019 At 10. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) STATEMENTS THE FINANCIAL TO NOTES
58 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 59 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) (2,040) 514,779 (3,097) (113,321) (101,149) (Note 5) 1,918,771 (95,895) 688,864 (123,991) 922,284 KHR’000 1,615,248 2,380,428 2,841,055 11. INTANGIBLE ASSETS
2019 2018
- - Total
US$ KHR’000 KHR’000 127,263 (28,015) 477,544 (23,707) 402,003 229,538 592,441 Cost (30,653) 707,082 (25,006) 170,300 170,300 US$ (NOTE 5) US$ (NOTE 5)
At 1 January 345,576 1,388,524 310,597 1,253,880 ------Additions 38,500 156,002 34,979 141,490 US$
Work in Work - 20,584 12,725 Currency translation difference - (6,846) 12,725 12,725 12,725 Progress At 31 December 384,076 1,565,110 345,576 1,388,524 ------Less: Accumulated amortisation US$ 15,107 51,475 4,385 68,166 21,076 36,368 72,551 Furniture
and fixtures At 1 January 203,322 816,948 139,041 561,309 Amortisation for the year 75,209 304,747 64,281 260,017 - - - - Currency translation difference - 13,319 - (4,379) US$ (13,611)
67,570 At 31 December 278,531 1,135,014 203,322 816,947 54,540 199,195 343,909 290,528 240,124 103,785 (14,189) Computers
Carrying amounts - - -
- At 31 December 105,545 430,096 142,254 571,577 Office 18,118 41,511 15,601 15,601 49,533 75,676 (10,817) 30,927 80,460 (10,096)
Equipment 12. BORROWINGS
2019 2018 2019 2018 - - - - US$
Motor KHR’000 KHR’000 (CONTINUED) vehicles 37,706 34,066 146,439 50,000 50,000 165,786 (30,653) (28,015) 122,029 128,080 US$ US$ (NOTE 5) (NOTE 5)
Related parties (Note 24B) 33,774,541 29,949,602 137,631,254 120,337,501 - - - - -
- Non-related parties 10,805,214 6,742,160 44,031,248 27,089,999 US$ 8,332 5,432 2,900 11,632 44,579,755 36,691,762 181,662,502 147,427,500 31,651 20,019 20,019 23,319 Leasehold Accrued interest payable 210,134 129,003 856,296 518,334 Improvements 44,789,889 36,820,765 182,518,798 147,945,834 TY AND EQUIPMENT
The Company entered into loan agreements with various lenders which are all unsecured. The principal and interest repayments are made either on a semi-annual or quarterly basis based on the respective payment schedule in the 2019
PROPER loan agreement.
difference Less: Accumulated Less: depreciation 1 January 2018 At Depreciation for the year Disposal off Written Currency translation difference 31 December 2018 At Carrying amounts 31 December 2018 At Cost 1 January 2018 At Additions Disposal off Written Currency translation 31 December 2018 At 10. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) STATEMENTS THE FINANCIAL TO NOTES
60 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 61 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 12. BORROWINGS (CONTINUED) 13. OTHER LIABILITIES
Borrowings are analysed as follows: 2019 2018 2019 2018 2019 2018 2019 2018 KHR’000 KHR’000 KHR’000 KHR’000 US$ US$ (NOTE 5) (NOTE 5) A. By maturity: US$ US$ (NOTE 5) (NOTE 5) Account payable 40,176 43,352 163,717 174,188 1 to 3 months - 995,520 - 3,999,999 Accrued expenses 445,791 454,572 1,816,598 1,826,470 3 to 12 months 22,866,565 995,520 93,181,252 3,999,999 Other tax payables 18,325 9,026 74,674 36,266 1 to 5 years 17,731,595 34,700,722 72,256,250 139,427,502 Other payables 187,923 143,893 765,783 578,163 Over 5 years 3,981,595 - 16,225,000 - 692,215 650,843 2,820,772 2,615,087 44,579,755 36,691,762 181,662,502 147,427,500
B. By type: 14. PROVISION FOR EMPLOYEE BENEFITS
Senior debts 40,598,159 36,691,762 165,437,498 147,427,500 2019 2018 2019 2018 Subordinated debts 3,981,596 - 16,225,004 - KHR’000 KHR’000 44,579,755 36,691,762 181,662,502 147,427,500 US$ US$ (NOTE 5) (NOTE 5)
Seniority indemnity 53,524 166,729 218,110 669,917 2019 2018
This represents provision for seniority indemnity in accordance with the Prakas No. 443 issued by the Ministry of
US Dollars 7.00% - 8.82% 7.00% - 8.50% Labour and Vocational Training (“MoLVT”) on 21 September 2018, and subsequently amended by the Instruction No. 042/19 dated 22 March 2019. Khmer Riels 8.00% - 8.50% 8.00% - 8.50% It requires all employers to settle the seniority indemnity to their employee as follows:
• Current pay: starting from 2019 onwards at the amounts equal to 15 days of wages and other benefits per 2019 2018 2019 2018 year.
KHR’000 KHR’000 • Retrospective (back-pay): starting from end of 2021 onwards at the amounts equal to 6 days of net wages D. By currency: US$ US$ (NOTE 5) (NOTE 5) per year. The provision of back-pay seniority indemnity is calculated at a maximum amount of 6 months net wages (depends on the length of the service employee served) to the employee who has seniority before 2019. USD 27,500,000 14,941,762 112,062,500 60,036,000 KHR 17,079,755 21,750,000 69,600,002 87,391,500 44,579,755 36,691,762 181,662,502 147,427,500
62 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 63 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 14. PROVISION FOR EMPLOYEE BENEFITS (CONTINUED) 15. INCOME TAX (CONTINUED)
2019 2018 2019 2018 A. Deferred tax, net (continued) Movement of net deferred tax assets is as follows: KHR’000 KHR’000 2019 2018 2019 2018 US$ US$ (NOTE 5) (NOTE 5) KHR’000 KHR’000 At 1 January 166,729 - 669,917 - US$ US$ (NOTE 5) (NOTE 5) Additions during the year 22,079 166,729 89,464 674,419 Paid during the year (135,284) - (548,171) - As at 1 January 355,656 149,852 1,429,026 604,953 Currency translation difference - - 6,900 (4,502) Recognised in profit or loss 86,123 205,804 348,970 832,477 At 31 December 53,524 166,729 218,110 669,917 Currency translation difference - - 22,253 (8,404) As at 31 December 441,779 355,656 1,800,249 1,429,026 15. INCOME TAX B. Current income tax liability A. Deferred tax, net 2019 2018 2019 2018 2019 2018 2019 2018 KHR’000 KHR’000 KHR’000 KHR’000 US$ US$ (NOTE 5) (NOTE 5) US$ US$ (NOTE 5) (NOTE 5) As at 1 January 559,348 61,610 2,247,429 248,720
Deferred tax assets 441,779 355,656 1,800,249 1,429,026 Recognised in profit or loss 835,637 651,665 3,386,001 2,635,985 Income tax paid (684,987) (153,927) (2,775,567) (622,635) Others 6,877 - 27,866 - Deferred tax assets are attributable to the following: Currency translation difference - - 35,537 (14,641) 2019 2018 2019 2018 As at 31 December 716,875 559,348 2,921,266 2,247,429 KHR’000 KHR’000 In accordance with Cambodian Law on Taxation, the Company has an obligation to pay corporate income tax of US$ US$ (NOTE 5) (NOTE 5) either the profit tax at the rate of 20% of taxable profits or the minimum tax at 1% of gross revenues, whichever is higher. Property and equipment (18,699) 18,250 (76,198) 73,329 2019 2018 2019 2018 Provision for employee benefits 69,341 100,674 282,565 404,508 Allowance for impairment loss 102,942 100,301 419,489 403,009 KHR’000 KHR’000 Unearned processing fee 157,469 142,974 641,686 574,470 US$ US$ (NOTE 5) (NOTE 5) Unrealised exchange gain/loss 9,048 (6,543) 36,869 (26,290) Current income tax 835,637 651,665 3,386,001 2,635,985 Others 121,678 - 495,838 - Deferred tax income (86,123) (205,804) (348,970) (832,477) 441,779 355,656 1,800,249 1,429,026 Income tax expense 749,514 445,861 3,037,031 1,803,508
64 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 65 % US$ 20% 0.45% 2018 -2.53% 20.45% AMOUNT 8,000,000 (NOTE 5) (NOTE KHR’000 32,296,000 32,296,000 39,896 SHARES 8,000,000 (255,640) 2,019,253 1,803,508 10,096,265 (NOTE 5) (NOTE 2018 KHR’000 2018 NUMBER OF 2019 (NOTE 5) (NOTE KHR’000 32,296,000 % OF 100% US$ 9,863 9,863 (63,199) in profit or loss is as follows: 499,197 499,197 445,861 OWNERSHIP 2,495,986 US$ US$ 2018 - % AMOUNT 20% 8,000,000 8,000,000 32,296,000 0.20% 22.20% - 30,317 3,006,714 3,037,031 2019 2019 15,033,577 (NOTE 5) (NOTE SHARES KHR’000 US$ 8,000,000 2019 NUMBER OF 8,000,000 % OF 100% - US$ 7,482 OWNERSHIP 749,514 742,032 3,710,162 AX (CONTINUED) APITAL INCOME T SHARE C Income tax expense (continued)
Cambodia Post Bank Plc. Cambodia Post (Note 5) Equivalent in KHR’000 As at 31 December 2019, the Company’s shareholder and their respective interest are as follows: the Company’s As at 31 December 2019, Registered, issued and fully paid ordinary share of US$1 each Registered, The reconciliation of income tax expense computed at the statutory rate 20% to shown Profit before income tax Income tax using statutory rate at 20% Non-deductible expenses Effect of restatement Income tax expense The calculation of taxable income is subject to the final review and approval tax authorities. 15. 16. C. NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) STATEMENTS THE FINANCIAL TO NOTES (CONTINUED) STATEMENTS THE FINANCIAL TO NOTES
66 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 67 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 17. REGULATORY RESERVES 21. NET IMPAIRMENT LOSSES ON FINANCIAL ASSETS
Regulatory reserves represented the variance of provision between loan impairment in accordance with CIFRS for 2019 2018 2019 2018 SMEs and regulatory provision in accordance with National Bank of Cambodia. KHR’000 KHR’000 18. INTEREST INCOME US$ US$ (NOTE 5) (NOTE 5)
2019 2018 2019 2018 Allowance for impairment loss (Note 8) 443,774 391,559 1,798,172 1,583,856 KHR’000 KHR’000 Recovered for loan written off from US$ US$ (NOTE 5) (NOTE 5) previous year (76,270) (93,483) (309,046) (378,139) 367,504 298,076 1,489,126 1,205,717 Loans to customers 12,178,253 10,101,856 49,346,281 40,862,008 Placement with banks 12,819 13,089 51,943 52,945 12,191,072 10,114,945 49,398,224 40,914,953 22. PERSONNEL EXPENSES 19. INTEREST EXPENSE 2019 2018 2019 2018 2019 2018 2019 2018 KHR’000 KHR’000 KHR’000 KHR’000 US$ US$ (NOTE 5) (NOTE 5) US$ US$ (NOTE 5) (NOTE 5) Salaries 2,939,811 3,061,040 11,912,114 12,381,907 Borrowings 3,125,915 2,498,234 12,666,208 10,105,357 Provident fund - (31,545) - (127,600) Seniority indemnity 22,079 166,729 89,464 674,419 20. OTHER OPERATING INCOME Employee training 55,613 40,677 225,344 164,538 Others 113,694 114,080 460,688 461,454 2019 2018 2019 2018 3,131,197 3,350,981 12,687,610 13,554,718
KHR’000 KHR’000 US$ US$ (NOTE 5) (NOTE 5)
Loans penalty 343,357 254,334 1,391,283 1,028,781 Gain on disposal of property and equipment - 10,706 - 43,306 Exchange gains - (32) - (129) Other income 31,632 33,737 128,172 136,466 374,989 298,745 1,519,455 1,208,424
68 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 69 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 23. OTHER EXPENSES 24. RELATED PARTIES (CONTINUED) A. Identity of related parties ( continued) 2019 2018 2019 2018 2019 2018 2019 2018 KHR’000 KHR’000 US$ US$ (NOTE 5) (NOTE 5) KHR’000 KHR’000 US$ US$ (NOTE 5) (NOTE 5) Rental expense 651,406 551,415 2,639,497 2,230,474 Depreciation and amortisation 203,119 191,544 823,038 774,795 Short-term employee benefits 274,582 273,648 1,118,921 1,099,518 Fuel 182,445 203,254 739,267 822,162 Board of Directors fees 6,070 1,793 24,596 7,253 Repairs and maintenance 161,729 145,914 655,326 590,222
Professional services and B. Borrowings from related parties (Note 12) license 117,574 93,848 476,410 379,615 2019 2018 2019 2018 Bank charge 101,496 82,694 411,262 334,497 Office supplies and equipment 96,237 80,151 389,952 324,211 KHR’000 KHR’000 Utilities expenses 83,817 69,426 339,626 280,828 US$ US$ (NOTE 5) (NOTE 5) Telecommunication charges 91,791 81,796 371,937 330,865
Transportation 85,306 79,530 345,660 321,699 Borrowings from shareholder 981,596 - 4,000,003 - Other tax expense 72,529 58,573 293,888 236,928 Borrowings from related parties 32,792,945 29,949,602 133,631,251 120,337,501 Conferences/convention 33,774,541 29,949,602 137,631,254 120,337,501 expense 16,589 13,804 67,219 55,837
Printing & forms expenses 11,815 10,666 47,874 43,144 Interest expense on borrowings 2,291,457 2,117,507 9,337,689 8,508,144 Publicity expenses 8,217 13,795 33,295 55,801
Board of Directors’ fee 6,070 1,793 24,596 7,253 C. Transactions with the related parties Other expense 341,143 92,210 1,382,311 372,989 2019 2018 2019 2018 2,231,283 1,770,413 9,041,158 7,161,320 KHR’000 KHR’000 24. RELATED PARTIES US$ US$ (NOTE 5) (NOTE 5) A. IDENTITY OF RELATED PARTIES
The related parties of, and their relationship with the Company are as follows: Rental expenses 191,110 133,332 778,774 535,728 Relationship Related party Placement at banks 663,053 171,017 2,701,942 687,146
Immediate parent entity Refer to Note 16
Key management personnel All directors of the Company who make critical decisions in relation to the strategic direction of the Company and senior management staff (including their close family members)
70 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 71 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 25. COMMITMENTS AND CONTINGENCIES 27. SIGNIFICANT ACCOUNTING POLICIES
A. Lease commitments The Company has commitments for the lease of its headquarters and branch offices under an operating lease arrangement, with future minimum lease amounts due as follows:
2019 2018 2019 2018
KHR’000 KHR’000
US$ US$ (NOTE 5) (NOTE 5)
Less than 1 year 614,285 411,977 2,503,213 1,655,324
2 to 5 years 922,565 558,277 3,759,454 2,243,157
Over 5 years - 20,341 - 81,730
1,536,850 990,595 6,262,667 3,980,211
B. Taxation contingencies The taxation system in Cambodia is characterised by numerous taxes and frequently changing legislation, which is often unclear, contradictory, and subject to interpretation. Often, differing interpretations exist among numerous
taxation authorities and jurisdictions. Taxes are subject to review and investigation by a number of authorities, who
are enabled by law to impose severe fines, penalties and interest charges.
These facts may create tax risks in Cambodia substantially more significant than in other countries. Management believes that it has adequately provided for tax liabilities based on its interpretation of tax legislation. However, the
relevant authorities may have different interpretations and the effects could be significant.
26. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
Fair value represents the amount at which an asset could be exchanged or a liability settled on an arm’s length
basis. As verifiable market prices are not available, market prices are not available for a significant proportion of the
Company’s financial assets and liabilities. Fair values, therefore, have been based on management assumptions
according to the profile of the asset and liability base. In the opinion of the management, the carrying amounts of
the financial assets and liabilities included in the statement of financial position are a reasonable estimation of their
fair values.
72 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 73 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 27. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 27. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
taxable profits will be available against which they can ownership of the financial asset are transferred or If there is no quoted price in an active market, then includes: be used. Future taxable profits are determined based in which the Company neither transfers nor retains the Company uses valuation techniques that maximise • significant financial difficulty of the borrower or on business plans for the Company and the reversal substantially all of th the use of relevant observable inputs and minimise issuer; of temporary differences. Deferred tax assets are the use of unobservable inputs. The chosen valuation risks and rewards of ownership and it does not retain reviewed at each reporting date and are reduced to technique incorporates all of the factors that market • default or delinquency by a borrower; control of the financial asset. the extent that it is no longer probable that the related participants would take into account in pricing a • the restructuring of a loan or advance by the The Company derecognises a financial liability when tax benefit will be realised. transaction. Company on terms that the Company would its contractual obligations are discharged or cancelled, Unrecognised deferred tax assets are reassessed at The best evidence of the fair value of a financial not consider otherwise. or expire. each reporting date and recognised to the extent that instrument at initial recognition is normally the • indications that a borrower or issuer will enter (iv). Offsetting it has become probable that future taxable profits will transaction price – i.e. the fair value of the consideration bankruptcy; be available against which they can be used. Financial assets and financial liabilities are offset and given or received. If the Company determines that • the disappearance of an active market for a the net amount presented in the statement of financial the fair value at initial recognition differs from the Deferred tax is measured at the tax rates that are security; or position when, and only when, the Company currently transaction price and the fair value is evidenced neither expected to be applied to temporary differences when has a legally enforceable right to set off the amounts by a quoted price in an active market for an identical • observable data relating to a group of assets they reverse, using tax rates enacted or substantively and it intends either to settle them on a net basis or to asset or liability nor based on a valuation technique such as adverse changes in the payment enacted at the reporting date. realise the asset and settle the liability simultaneously. that uses only data from observable markets, then status of borrowers or issuers in the group, The measurement of deferred tax reflects the tax or economic conditions that correlate with (v). Amortised cost measurement the financial instrument is initially measured at fair consequences that would follow the manner in which value, adjusted to defer the difference between the defaults in the group. the Company expects, at the reporting date, to recover The amortised cost of a financial asset or financial fair value at initial recognition and the transaction All individually significant assets are individually or settle the carrying amount of its assets and liabilities. liability is the amount at which the financial asset or price. Subsequently, that difference is recognised in assessed for impairment. financial liability is measured at initial recognition, minus profit or loss on an appropriate basis over the life of principal repayments, plus or minus the cumulative Those found not to be specifically impaired are then the instrument but no later than when the valuation is G. Financial assets and financial liabilities amortisation using theeffective interest method of collectively assessed for any impairment that has been wholly supported by observable market data or the (i). Recognition any difference between the initial amount recognised incurred but not yet identified. transaction is closed out. and the maturity amount, minus any reduction for The Company initially recognises a financial assets or The individual component of the total allowance impairment. The Company recognises transfers between levels of a financial liability when the Company becomes a party for impairment applies to financial assets evaluated the fair value hierarchy as of the end of the reporting to the contractual provisions of the instrument. (vi). Fair value measurement individually for impairment, and found to be period during which the change has occurred. A financial asset or financial liability is measured initially Fair value is the price that would be received to sell individually impaired, and is based on management’s (vii). Identification and measurement of at fair value plus transaction costs that are directly an asset or paid to transfer a liability in an orderly best estimate of the present value of the cash flows impairment attributable to its acquisition or issue. transaction between market participants at the that are expected to be received. In estimating these Objective evidence of impairment cash flows, management makes judgements about a (ii). Classification measurement date in the principal or, in its absence, debtor’s financial situation and the net realisable value the most advantageous market to which the Company At each reporting date, the Company assesses whether The Company classifies its financial assets and of any underlying collateral. Each impaired asset is has access at that date. The fair value of a liability there is objective evidence that financial assets that liabilities as basic financial instruments in accordance assessed on its merits, and the workout strategy and reflects its non-performance risk. are measured at cost or amortised cost. A financial with Section 11 Basic Financial Instruments. estimate of cash flows considered recoverable are When available, the Company measures the fair value asset or a group of financial assets is impaired when (iii). Derecognition independently approved by the management. of an instrument using the quoted price in an active objective evidence demonstrates that a loss event has The Company derecognises a financial asset when the market for that instrument. A market is regarded as occurred after the initial recognition of the assets and A collective component of the total allowance is contractual rights to the cash flows from the financial active if transactions for the asset or liability take place that the loss event has an impact on the future cash established for: flows of the assets that can be estimated reliably. asset expire or settled, or it transfers the rights to with sufficient frequency and volume to provide pricing • groups of homogeneous loans that are not receive the contractual cash flows in a transaction information on an ongoing basis. Objective evidence that financial assets are impaired considered individually significant; and in which substantially all of the risks and rewards of
74 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 75 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 27. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 27. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) • groups of assets that are individually significant The Company writes off a loan or an investment K. Other assets but that were not found to be individually debt security, either partially or in full, and any Other assets are carried at amortised cost using the effective interest method in the statement of financial position. impaired. related allowance for impairment losses, when the management determines that there is no realistic L. Property and equipment The collective allowance for groups of homogeneous prospect of recovery. loans is established using statistical methods such (ii) Items of property and equipment are measured at cost less accumulated depreciation and accumulated as roll rate methodology or, for small portfolios with H. Cash and cash equivalents impairment losses, if any. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. insufficient information, a formula approach based on Cash and cash equivalents consist of cash and bank historical loss rate experience. balances, demand deposits and short-term highly (ii) Depreciation of property and equipment is charged to statement of comprehensive income over the In assessing the collective loss allowance, management liquid investments with original maturities of three estimated useful lives of the individual assets at the following rates per annum and method: considers factors such as credit quality, portfolio size, months or less when purchased, and that are readily Useful lifeMethod concentrations and economic factors. To estimate the convertible to known amounts of cash and subject to Leasehold improvements 4 years Straight-line method required allowance, assumptions are made to define an insignificant risk of changes in value, and are used how inherent losses are modelled and to determine by the Company in the management of its short-term Motor vehicles 4 years Straight-line method commitments the required input parameters, based on historical Office equipment 4 years Straight-line method experience and current economic conditions. The Cash and cash equivalents are carried at amortised Computer 4 years Straight-line method accuracy of the allowance depends on the model cost in the statement of financial position. assumptions and parameters used in determining the Furniture and fixtures 4 years Straight-line method I. Statutory deposits collective allowance. (iii) Subsequent expenditure relating to an item of property and equipment that has already been recognised Statutory deposits represent mandatory reserve Objective evidence of impairment is added to the carrying amount of the asset when it is probable that future economic benefits, in excess deposits and cash maintained with the National Bank of the originally assessed standard of performance of the existing asset, will flow to the Company. All Impairment losses on assets measured at amortised of Cambodia in compliance with the Law on Banking other subsequent expenditure is recognised as an expense in the period in which it is incurred. cost are calculated as the difference between the and Financial Institutions ("LBFI"). Statutory deposits carrying amount and the present value of estimated are not available to finance the Company's day-to-day (iv) Gains or losses arising from the retirement or disposal of an item of property and equipment are future cash flows discounted at the asset’s original operations hence are not considered as part of cash determined as the difference between the estimated net disposal proceeds and the carrying amount of effective interest rate. and cash equivalents for the purpose of the statement the assets and are recognised in profit or loss on the date of retirement or disposal. (vii). Identification and measurement of of cash flows. (V) Fully depreciated items of property and equipment are retained in the financial statements until disposed impairment (continued) Balance with National Bank of Cambodia are carried at of or written off. Reversal of impairment and write offs amortised cost using the effective interest method in M. Intangible assets If, in a subsequent period, the amount of an impairment the statement of financial position. Intangible assets comprise of software including costs incurred in acquiring and building software, which is not loss decreases and the decrease can be related J. Loans to customers integral to the operation of hardware, and is carried at cost less accumulated amortisation and accumulated objectively to an event occurring after the impairment ‘Loans to customers are non-derivative financial assets impairment losses, if any. Software costs are amortised on a straight-line basis over the expected useful lives of 4 was recognised, the entity shall reverse the previously with fixed or determinable payments that are not years. recognised impairment loss either directly or by quoted in an active market and that the Company does adjusting an allowance account. Costs incurred in planning or evaluating software proposals, or in maintaining systems after implementation, are not intend to sell immediately or in the near term. not capitalised. The reversal shall not result in a carrying amount of Loans and advances are initially measured at fair the financial asset (net of any allowance account) that N. Impairment of non-financial assets value plus incremental direct transaction costs, and exceeds what the carrying amount would have been The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine subsequently measured at their amortised cost using had the impairment not previously been whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is the effective interest rate method. recognised. The entity shall recognise the amount of estimated. the reversal in profit or loss immediately. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less cost to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using 76 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 77 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 27. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 27. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific Based on these NBC Guidelines, all loans to customers are classified according to the repayment capacity of the to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets counterparty and the number of days past due is taken into account as follows: that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). Classification Number of days past due Allowance
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated Short-term loans (less than or equal one year): recoverable amount. Impairment losses are recognised in profit or loss. Normal/standard <15 days 1%
O. Provisions Special mention 15 days – 30 days 3%
Provisions are recognised in the statement of financial position when the Company has a legal or constructive Substandard 31 days – 60 days 20% obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to Doubtful 61 days – 90 days 50% settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, Loss ≥ 91 days 100% the risks specific to the liability. The unwinding of the discount is recognised as finance cost. Long-term loans (more than one year):
P. Borrowing and other liabilities Normal/standard <30 days 1%
Borrowing and other liabilities are carried at amortised cost using the effective interest method in the statement of Special mention ≥ 30 days – 89 days 3% financial position. Substandard ≥ 90 days – 179 days 20% Q. Employee benefits Doubtful ≥ 180 days – 359 days 50% (i). Short-term employee benefits Loss More than 359 days 100% Short-term employee benefits are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. In accordance with Article 73, the entity is shall compare the provision calculated in accordance with above requirements, and the Company’s record which is under CIFRS for SMEs: (ii).Other long-term employee benefits (i). If the regulatory provision is lower, the entity records the provision calculated in accordance with CIFRS The Company’s net obligation in respect of long-term employee benefits is the amount of the benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its for SMEs; and present value. Remeasurements are recognised in profit or loss in the period in which they arise. (ii). If the regulatory provision is higher, the entity records the provision calculated in accordance with CIFRS R. Share capital for SMEs and transfer the difference from retained earnings into regulatory reserves in equity account. Incremental costs that are directly attributable to the issue of an equity instrument are deducted from the initial 28. EXPLANATION OF TRANSITION TO CIFRS FOR SMES measurement of the equity instruments. As stated in Note 2, these are the Company’s first set of financial statements prepared in accordance with CIFRS S. Regulatory reserves for SMEs.
Regulatory reserves are set up for the variance of provision between loan impairment in accordance with CIFRS The accounting policies set out in Note 27 have been applied in preparing the financial statements for the year for SMEs and regulatory provision in accordance with National Bank of Cambodia’s Prakas No. B7-017-344 dated 1 ended 31 December 2019, the comparative information presented in these financial statements for the year ended December 2017 and Circular No. B7-018-001 Sor Ror Chor Nor dated 16 February 2018 on credit risk classification 31 December 2018 and in the preparation of an opening CIFRS for SMEs statement of financial position at 1 January and provision on impairment for banks and financial institutions. 2018 (the Company’s date of transition).
Based on these NBC Guidelines, all loans to customers are classified according to the repayment capacity of the In preparing its opening CIFRS for SMEs statement of financial position, the Company has adjusted amounts counterparty and the number of days past due is taken into account as follows: reported previously in financial statements prepared in accordance with Cambodian Accounting Standards and the guidelines of the National Bank of Cambodia (“NBC”) relating to the preparation and presentation of the financial statements (“Cambodia GAAP”).
78 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 79 - - - US$ US$ CIFRS 316,768 CIFRS 166,729 142,254 619,601 619,601 279,453 229,538 355,656 559,348 650,843 400,000 10,129,981 1,850,528 38,197,685 8,000,000 36,820,765 for SMEs 46,263,849 48,327,666 48,327,666 for SMEs ------US$ US$ (1,293) SMEs 23,739 SMEs 278,160 129,003 279,453 619,601 619,601 (843,871) (714,868) 400,000 (436,708) (463,679) (319,956) Effect of (406,915) (436,708) (289,498) Effect of transition transition transition transition to CIFRS for to CIFRS for 31 December 2018 31 December 2018 - - - US$ US$ GAAP 166,729 GAAP 559,348 142,254 1,851,821 1,494,714 780,447 9,851,821 289,498 229,538 355,656 319,956 319,956 406,915 8,000,000 36,691,762 38,912,553 46,240,110 48,764,374 48,764,374 Cambodia Cambodia - - - - US$ US$ 61,610 111,874 79,856 171,556 CIFRS CIFRS 412,889 190,438 149,852 276,866 400,000 8,079,856 8,000,000 2,050,655 31,581,451 31,581,451 23,501,595 22,915,222 for SMEs 28,342,084 for SMEs ------US$ US$ SMEs SMEs (37,835) (37,835) 400,000 (168,143) (462,967) (462,967) (294,795) (206,007) (404,763) (500,802) Effect of Effect of (500,802) (1,877,749) 2,050,655 2,050,655 transition transition transition transition to CIFRS for to CIFRS for 1 January 2018 1 January 2018 - - - US$ US$ 61,610 117,691 111,874 571,661 171,556 GAAP GAAP 168,143 168,143 190,438 149,852 8,117,691 875,856 404,763 404,763 1,877,749 1,877,749 8,000,000 28,548,091 22,915,222 23,964,562 32,082,253 32,082,253 Cambodia Cambodia C C C C C A (i) A (i) A (ii) A (ii) A (ii) A (ii) Note Note TION OF TRANSITION TO CIFRS FOR SMES (CONTINUED) TION OF TRANSITION TO CIFRS FOR SMES (CONTINUED) TION OF TRANSITION TO EXPLANA EXPLANA
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) STATEMENTS THE FINANCIAL TO NOTES (CONTINUED) STATEMENTS THE FINANCIAL TO NOTES LIABILITIES Borrowings Other liabilities Provision for employee benefits Current income tax liability liabilities Total EQUITY Share capital reserves Regulatory earnings Retained equity Total liabilities and equity Total ASSETS Cash on hand Deposits and placements with NBC Deposits and placements with banks Cash and cash equivalents deposits Statutory to customers Loans Other assets Property and equipment Intangible assets Deferred tax assets assets Total 28. of equity Reconciliation 28. of equity (continued) Reconciliation 80 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 81 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 28. EXPLANATION OF TRANSITION TO CIFRS FOR SMES (CONTINUED) 28. EXPLANATION OF TRANSITION TO CIFRS FOR SMES (CONTINUED)
A. Financial assets and liabilities Reconciliation of comprehensive income for the year ended 31 December 2018 (i). Restatement of allowance for impairment
2018 Under Cambodia GAAP, the Company’s recognised impairment losses on financial assets based on overdue days. EFFECT OF On adoption of CIFRS for SMEs, the impairment losses are adjusted retrospectively to reflect the incurred loss T R A N S I T I O N model. CAMBODIA TO CIFRS FOR CIFRS FOR GAAP SMES SMES NOTE US$ US$ US$
Interest income A (ii) 7,078,911 3,036,034 10,114,945 1 JANUARY 2018 31 DECEMBER 2018 Interest expense (2,498,234) - (2,498,234) US$ US$ Net interest income 4,580,677 3,036,034 7,616,711 Other operating income A (ii) 3,485,281 (3,186,536) 298,745 Statement of financial position 90,329 279,453 Net operating income 8,065,958 (150,502) 7,915,456
Decrease in loans to customers Net impairment loss on financial assets (764,573) 466,497 (298,076) Related tax effect - - Personnel expenses A (ii) (3,350,981) - (3,350,981) Adjustment to retained earnings- US$ 90,329 279,453 General and administrative expenses (1,770,413) - (1,770,413) Adjustment to retained earnings (KHR’000 Profit before income tax 2,179,991 315,995 2,495,986 – Note 5) 362,942 1,128,152 Income tax expense (445,861) - (445,861) Net profit for the year 1,734,130 315,995 2,050,125 Statement of comprehensive income
Other comprehensive income - - - Increase in impairment losses on loan to Currency translation differences - - - customers 466,497 Total comprehensive income for the year 1,734,130 315,995 2,050,125 Decrease in impairment loss on placements with banks (3,232) Adjustment to profit before income tax -US$ 463,265 Adjustment to retained earnings (KHR’000 – Note 5) 1,870,201
82 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 83 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) 28. EXPLANATION OF TRANSITION TO CIFRS FOR SMES (CONTINUED) 28. EXPLANATION OF TRANSITION TO CIFRS FOR SMES (CONTINUED)
(ii). Restatement of amortised cost – financial asset and liability, transaction costs B. Income tax and interest There was no impact on deferred tax as the Company accounted for both CIFRS for SME and impairment per Under Cambodia GAAP, transaction costs, including fees and commission, integral to the financial asset or liability Cambodia GAAP. were not considered as effective interest rate and recognised as expense on occurrence of transactions. Recognition of interest income was suspended when loan become non-performing. In addition, interest receivables/payables C. Reclassification are recorded as other assets and other liabilities. In addition to above adjustments, the Company made certain reclassification to conform with the current year presentation. Under CIFRS for SMEs, a financial asset or financial liability is measured initially at fair value plus transaction costs that are directly attributable to its acquisition or issue and subsequently measured at their amortised cost using the 29. SUBSEQUENT EVENT effective interest method. Fee and commission income and expense that are integral to the effective interest rate IMPACT OF NOVEL CORONAVIRUS OUTBREAK TO THE COMPANY on a financial asset or financial liability are included in the measurement of the effective interest rate. Since January 2020, the outbreak of Novel Coronavirus (“COVID-19”) has impact on the global business environment. Up to the date of this report, COVID-19 has not resulted in material impact to the Company. Pending The impact arising from the change is summarised as follows: on the development and spread of COVID-19 subsequent to the date of this report, further changes in economic conditions for the Company arising thereof may have impact on the financial results of the Company, the extent of which could not be estimated as at the date of this report. The Company will keep continuous attention on the situation of the COVID-19 and react actively to its impact on the financial position and operating results of the 1 JANUARY 2018 31 DECEMBER 2018 Company.
US$ US$
Statement of financial position
Increase in loans to customers 347,289 525,882 Decrease in other assets (347,289) (525,882) Decrease in other liabilities (547,495) (843,871) Placements with banks - 3,232 Adjustment to retained earnings- US$ (547,495) (840,639) Adjustment to retained earnings (KHR’000 – Note 5) (2,199,834) (3,393,660)
Statement of comprehensive income
Increase in interest income 3,036,034 Decrease in fees and commission income (3,186,536) (150,502)
84 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 85 5
BRANCH NETWORK AND CONTACT
Top Branches & Staff Perfomance Product and Service Branch Network and Contact
86 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 87 TOP PERFORMANCE BRANCHES
1 Barsedth
2 3 Kampong Tralach Soutr Nikom OUT PERFORMED BRANCHE 2019
4 5 Kampong Chhnang Chi Kraeng
88 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 89 BRANCH NETWORK AND CONTACT
Head Office Srey Santhor Branch Kampong Trabek Branch Preah Vihear Branch National Road 1, Phum Chambk, Prasat Commune, Kampong #95, Monivong Blvd Conner (118), Sangkat Monorom, Phum Roka Tvear, Preaek Pou Commune, Srei Santhor District, Road Phsa Chas, Phum Andongpor, Sangkat Kampong Pranak, Trabaek District, Prey Veng Province. Krong Preah Vihear, Preah Vihear Province. Khan 7 Makara, Phnom Penh. Kampong Cham Province. Tel: (855-10) 8888 12 | [email protected] Tel: (855-10) 8888 70 | [email protected] Tel: (855-69) 69 2222 | [email protected] Tel: (855-10) 8888 42 | [email protected] Dangkor Branch Banteay Meas Branch Kampong Cham Branch Rattanakiri Branch National Road 3, Phum Tuek Thla, Sangkat Krang Pong Ro, National Road 31, Phum Prey Krala Khang Lech, Tuk Meas Khang #163, Village7, Monivong Road, Sangkat Kampong Cham, Krong #094, Road 70, Phum Cheychhumneah, Sangkat Labansiek, Krong Khan Dangkao, Phnom Penh. Lech Commune, Banteay Meas District, Kompot Province. Kampong Cham, Kampong Cham Province. Banlung, Ratanak Kiri Province. Tel: (855-10) 8888 40 | [email protected] Tel: (855-10) 8888 50 | [email protected] Tel: (855-69) 20 8888 | [email protected] Tel: (855-69) 20 1111 | [email protected] Khsach Kandal Branch Prey Chhor Branch Prey Nob Branch Mongkul Borei Branch #8, Preak Tameak Village, Preak Tameak Commune, Khsach Kandal National Road 7, Phum Dondey, Chreyvien Commune, Prey Chhor National Road 4, Phum Somrong Kraom, Somrong Commune, National Road 5, Phum Chamkatadaok, Kraok commune, Mongkol District, Kandal Province District, Kompong Cham Province. Prey Nob District, Preah Sihanouk Province. Borei District, Banteay Meanchey Province. Tel: (855-69) 8888 57 | [email protected] Tel: (855-10) 8888 57 | [email protected] Tel: (855-10) 8888 94 | [email protected] Tel: (855-10) 8888 14 | [email protected] Ponhea Lue Branch Stung Treng Branch Preah Sihanouk Branch Pursat Branch National Road 5, Phum Thommeak Trai, Phsar Daek Commune, Road 57, Phum kandal, Sangkat Stung Treng, Krong Stung Treng, Village 3, Sangkat 1, Krong Sihanoukville, Sihanouk Province. #148, National Road # 5, Phum Monche, Sangkat Prey Nhi, Ponhea Lueu District, Kandal Province. Stung Treng Province. Tel: (855-87) 40 3333 | E-mail: [email protected] Krong Pursat, Pursat Province. Tel: (855-81) 8888 04| [email protected] Tel: (855-69) 94 1111 | [email protected] Tel: (855-69) 31 8888 | [email protected] Koh Thom Branch Pornheakrek Branch Bavel Banch Battambang Branch National Road 21, Phum Preaek Thmei, Preaek Thmei Commune, National Road 8, Phum Pou Srok, Kaong Kang Commune, Ponhea Phum Spean Kondal Bavel Commune, Bavel District, Battambang National Road No 5, Phum Romchek4, Sangkat ratanak, Kaoh Thom District, Kandal Province. Kraek District, Tboung Khmum Province. Province. Krong Battambang, Battambang Province. Tel: (855-69) 84 1111 | [email protected] Tel: (855-10) 8888 61 | [email protected] Tel: (855-10) 8888 34 | [email protected] Tel: (855-10) 8888 19 | [email protected]
Kampong Speu Branch Kampot Branch Kean Svay Branch Bakan Branch # 5, National Road 4, Phum Mukh Khett, Sangkat Rokar Thom, Phum Kompong bay khang cherng, Sangkat Kampong Bay, Krong National Road1 Phum Thum, Phum Thum Commune, Kean Svay National Road 5, Phum Ou Ta Paong, Ou Ta Paong Commune, Krong Chbar Mon, Kompong Speu Province. Kampot, Kampot Province. District, Kandal Province. Bakan District, Pursat Province. Tel: (855-10) 8888 52 | [email protected] Tel: (855-69) 8888 56 | [email protected] Tel: (855-87) 49 6666 | [email protected] Tel: (855-69) 8888 71 | [email protected] Bor Seth Branch Chhouk Branch Svay Rieng Branch Chi Kraeng Branch #26AB, Group 2, Phum Trapeang Khyang, Tuol Ampil Commune, National Road 3, Phum Chheu Teal, Chhuk Commune, Phum Chong Preaek, Sangkat Svay Rieng, Krong Svay Rieng, National Road 6, Group 6, Phum onlung vil, Kouk Thlok Kraom Barsedth District, Kampong Speu Province. Chhuk District, Kampot Province. Svay Rieng Province. Commune, Chi Kraeng District, Siem Reap Province. Tel: (855-69) 52 8888 | [email protected] Tel: (855-10) 8888 02 | [email protected] Tel: (855-10) 8888 51 | [email protected] Tel: (855-10) 8888 41 | [email protected] Takeo Branch Prey Kabbas Kratie Branch Sotrnikum Branch #90, National Road 2, Phum Lory, Sangkat Roka Knong, Phum Lvea Tnaot, Prey Lvea Commune, Prey Kabbas District, Takeo Phum Phsar Vaeng, Sangkat Kratie, Krong Kratie, National Road 6, Phum Dam Daek Thmei, Dam Daek Commune, Krong Doun Keo, Takeo Province. Province. Kratie Province. Soutr Nikom District, Siem Reap Province. Tel: (855-69) 92 8888 | [email protected] Tel: (855-10) 8888 67| [email protected] Tel: (855-81) 8888 64 | [email protected] Tel: (855-69) 86 1111 | [email protected] Bati Branch Kampong Thom Branch Chhloung Branch Krakor Branch National Road 2, Phum Chak, Trapeang Sab Commune, Bati District, Phum Ktei, Sangkat Pretahou, Krong Stoengsen Kampongthom, Phum Chrouy Thma Kraom, Chhloung Commune, Chhloung District, National Road 5, Phum Samrong, Kbal Trach Commune, Krakor Takeo Province. Province. Kratie Province. District, Pursat Province. Tel: (855-69) 8888 02 | [email protected] Tel: (855-10) 8888 56 | [email protected] Tel: (855-10) 8888 65 | [email protected] Tel: (855-69) 85 11111 | [email protected]
Tramkak Branch Batheay Branch Snoul Branch Thma Koul Banch National Road 25, Phum Angk Tasaom,Angk Tasaom Commune, National Road 6, Phum Ph’av, Ph’av Commune, Batheay District, Phum Kbal Snuol, Snuol Commune, Snuol District, Street 4, Phum span kandal, Bavel Commune, Bavel Tram Kak District, Takeo Province. Kampong Cham Province. District,Battambang Province. Kratie Province. Tel: (855-10) 8888 37 | [email protected] Tel: (855-69) 53 8888 | [email protected] Tel: (855-96) 4444 985 | [email protected] Tel: (855-81) 8888 20 | [email protected] Kirivong Branch Stoung Branch Stueng Trang Branch Kralanh Branch National Road 2, Phum Kampongthmey, Preah Bat Choan Chum National Road 6, Phum Kampong Kdei, Kampong Chen Tboung Phum Tnorttasay, Preaek Kak Commune, Stueng Trang District, National Road 6A, Phum Kampong Thmor 2, Kampong Thkov Commune, Kiri Vong District, Takeo Province. Commune, Stoung District, Kampong Thom Province. Kampong Cham Province. Commune, Kralanh District, Siem Reap Province. Tel: (855-10) 8888 49 | [email protected] Tel: (855-69) 34 1111 | [email protected] Tel: (855-10) 8888 04 | [email protected] Tel: (855-10) 8888 63 | [email protected]
Baray Branch Kampong Chhnang Branch Siem Reap Branch Pau Sen Chey Banch National Road 6A, Phum Prey Tatrav, Ballangk Commune, Baray # H6, National Road 5, Group1, Phum Khsam, Sangkat Khsam, National Road No 6, Phum Banteay Chas, Sangkat Sla Kram, Street 4, Trapang Kol Village, Sang Kat Kantouk, Khan Pau Sen District, Kompong Thom Province. Krong Kompong Chhnang, Kompong Chhnang Province. Krong Siem Reap, Siem Reap Province. Chey, Phnom Penh. Tel: (855-69) 37 8888 | [email protected] Tel: (855-10) 8888 60 | [email protected] Tel: (855-69) 51 8888 | [email protected] Tel: (855-96) 4444 985 | [email protected]
Svay Antor Branch Kampong Tralach Branch Maung Russey Branch No 432 Svay Antor1 Village, Svay Antor Commune, Svay Antor National Road 5, Phum Chrak Romiet, Ou Ruessei Commune, National Road 5, Phum Ream Kun, Kear Commune, Moung Ruessei District, Prey Veng Province. Kampong Tralack District, Kampong Chhnang Province. District, Battambang Province. Tel: (855-69) 30 8888 | [email protected] Tel: (855-69) 32 8888 | [email protected] Tel: (855-10) 8888 59 | [email protected]
90 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 FUNAN Microfinance Plc. I ANNUAL REPORT 2019 91